-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HzZs1fhENLci1r9Ga9uB0u/YlX64NdJHaTIshUlbhB820Um74FWFpaG8//bKPKX1 iwhFcigje3uA5B3ReCHCqg== 0000916457-97-000006.txt : 19970815 0000916457-97-000006.hdr.sgml : 19970815 ACCESSION NUMBER: 0000916457-97-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CALPINE CORP CENTRAL INDEX KEY: 0000916457 STANDARD INDUSTRIAL CLASSIFICATION: COGENERATION SERVICES & SMALL POWER PRODUCERS [4991] IRS NUMBER: 770031605 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12079 FILM NUMBER: 97662075 BUSINESS ADDRESS: STREET 1: 50 WEST SAN FERNANDO ST CITY: SAN JOSE STATE: CA ZIP: 95113 BUSINESS PHONE: 4089955115 MAIL ADDRESS: STREET 1: 50 W SAN FERNANDO STREET 2: SUITE 500 CITY: SAN JOSE STATE: CA ZIP: 95113 10-Q 1 QUARTERLY REPORT FOR JUNE 30, 1997 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------- FORM 10-Q [ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarter ended June 30, 1997 [ ] 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: 033-73160 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 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 [ X ] No [ ] Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date: $0.001 par value Common Stock 19,939,233 shares outstanding on August 12, 1997 - 1 - CALPINE CORPORATION AND SUBSIDIARIES Report on Form 10-Q For the Quarter Ended June 30, 1997 INDEX PART I. FINANCIAL INFORMATION Page No. ITEM 1. Financial Statements Condensed Consolidated Balance Sheets June 30, 1997 and December 31, 1996..........................3 Condensed Consolidated Statements of Operations Three and Six Months Ended June 30, 1997 and 1996............4 Condensed Consolidated Statements of Cash Flows Six Months Ended June 30, 1997 and 1996......................5 Notes to Condensed Consolidated Financial Statements.........6 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.........................13 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings..................................20 ITEM 2. Change in Securities...............................20 ITEM 3. Defaults Upon Senior Securities....................20 ITEM 4. Submission of Matters to a Vote of Security Holders............................................20 ITEM 5. Other Information..................................21 ITEM 6. Exhibits and Reports on Form 8-K...................21 Signatures....................................................................29 Exhibit Index.................................................................30 - 2 - PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CALPINE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS June 30, 1997 and December 31, 1996 (in thousands)
June 30, December 31, 1997 1996 ---------- ---------- ASSETS (unaudited) Current assets: Cash and cash equivalents ................................ $ 23,436 $ 100,010 Accounts receivable from related parties ................. 1,718 2,826 Accounts receivable from others .......................... 49,623 39,962 Notes receivable from related parties, current portion ... 15,564 -- Collateral securities, current portion ................... 6,056 5,470 Prepaid operating lease .................................. 13,652 12,668 Other current assets ..................................... 5,617 10,251 ---------- ---------- Total current assets ................................. 115,666 171,187 Property, plant and equipment, net .......................... 691,444 650,053 Investments in power projects ............................... 78,451 13,937 Collateral securities, net of current portion ............... 85,453 89,806 Notes receivable from related parties, net of current portion 150,902 18,182 Notes receivable from Coperlasa ............................. 16,353 17,961 Restricted cash ............................................. 25,735 55,219 Other assets ................................................ 17,064 13,870 ---------- ---------- Total assets ......................................... $1,181,068 $1,030,215 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of non-recourse project financing ........ $ 156,379 $ 30,627 Notes payable and short-term borrowings .................. 7,135 6,865 Accounts payable ......................................... 11,852 18,363 Accrued payroll and related expenses ..................... 3,393 3,912 Accrued interest payable ................................. 7,115 7,332 Other accrued expenses ................................... 6,972 7,870 ---------- ---------- Total current liabilities ............................ 192,846 74,969 Long-term line of credit .................................... 14,300 -- Non-recourse project financing, net of current portion ...... 264,480 278,640 Senior Notes ................................................ 285,000 285,000 Deferred income taxes, net .................................. 129,932 100,385 Deferred lease incentive .................................... 76,737 78,521 Other liabilities ........................................... 8,265 9,573 ---------- ---------- Total liabilities .................................... 971,560 827,088 ---------- ---------- Stockholders' equity Common stock ............................................. 20 20 Additional paid-in capital ............................... 166,433 165,412 Retained earnings ........................................ 43,055 37,695 Total stockholders' equity ........................... 209,508 203,127 ---------- ---------- Total liabilities and stockholders' equity ........... $1,181,068 $1,030,215 ========== ==========
The accompanying notes are an integral part of these condensed consolidated financial statements. - 3 - CALPINE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS For the Three and Six Months Ended June 30, 1997 and 1996 (in thousands, except per share amounts) (unaudited)
Three Months Ended Six Months Ended June 30, June 30, ---------------------- ---------------------- 1997 1996 1997 1996 --------- --------- --------- --------- Revenue: Electricity and steam sales ................ $ 62,639 $ 46,255 $ 96,326 $ 72,030 Service contract revenue ................... 1,715 2,848 3,529 5,434 Income from unconsolidated investments in power projects ........................... 2,131 298 4,164 1,713 Interest income on loans to power projects . 1,259 920 2,956 2,817 --------- --------- --------- --------- Total revenue .......................... 67,744 50,321 106,975 81,994 --------- --------- --------- --------- Cost of revenue: Plant operating expenses, depreciation, operating lease expense and production royalties................................ 35,537 27,363 64,276 46,835 Service contract expenses .................. 1,669 2,627 3,519 4,484 --------- --------- --------- --------- Total cost of revenue .................. 37,206 29,990 67,795 51,319 --------- --------- --------- --------- Gross profit .................................. 30,538 20,331 39,180 30,675 Project development expenses .................. 1,786 894 3,947 1,410 General and administrative expenses ........... 4,373 3,234 8,584 5,874 --------- --------- --------- --------- Income from operations ................. 24,379 16,203 26,649 23,391 Other expense (income): Interest expense ........................... 13,168 10,446 26,145 18,665 Other income, net .......................... (4,292) (2,244) (7,893) (2,777) --------- --------- --------- --------- Income before provision for income taxes 15,503 8,001 8,397 7,503 Provision for income taxes .................... 6,103 3,284 3,037 3,080 --------- --------- --------- --------- Net income ............................. $ 9,400 $ 4,717 $ 5,360 $ 4,423 ========= ========= ========= ========= Primary earnings per share: Weighted average shares outstanding ........ 20,998 13,362 20,425 12,007 ========= ========= ========= ========= Earnings per share ......................... $ 0.45 $ 0.35 $ 0.26 $ 0.37 ========= ========= ========= =========
The accompanying notes are an integral part of these condensed consolidated financial statements. - 4 - CALPlNE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Six Months Ended June 30, 1997 and 1996 (in thousands) (unaudited)
Six Months Ended June 30, ---------------------- 1997 1996 --------- --------- Net cash provided by operating activities ...................................... $ 16,800 $ 5,035 --------- --------- Cash flows from investing activities: Acquisition of property, plant and equipment ................................ (57,616) (8,061) Acquisition of Texas Cogeneration Company ................................... (36,411) -- Purchase of loans for Texas City and Clear Lake Power Plants ................ (155,622) -- Repayment of loans by Texas City and Clear Lake Power Plants ................ 5,737 -- Investment in King City, net of cash on hand ................................ -- (4,877) Investment in King City collateral securities ............................... -- (98,414) Acquisition of Calpine Gas Company .......................................... (7,621) -- Investments in power projects and capitalized costs ......................... (416) (2,983) Loans to Coperlasa .......................................................... -- (12,104) Maturities of collateral securities ......................................... 5,350 -- Decrease in restricted cash ................................................. 29,484 1,150 Other, net .................................................................. (3,382) (762) --------- --------- Net cash used in investing activities ................................. (220,497) (126,051) --------- --------- Cash flows from financing activities: Proceeds from issuance of Senior Notes Due 2006 ............................. -- 180,000 Borrowings from line of credit .............................................. 14,300 33,800 Repayments of line of credit ................................................ -- (53,651) Borrowings from bank ........................................................ -- 45,000 Repayments to bank .......................................................... -- (46,177) Borrowings of non-recourse project financing ................................ 128,300 -- Repayments of non-recourse project financing ................................ (16,247) (66,600) Proceeds from issuance of preferred stock ................................... -- 50,000 Proceeds from issuance of common stock ...................................... 954 -- Financing costs ............................................................. (251) (4,763) Other, net .................................................................. 67 -- --------- --------- Net cash provided by financing activities ............................. 127,123 137,609 --------- --------- Net increase (decrease) in cash and cash equivalents ........................... (76,574) 16,593 Cash and cash equivalents, beginning of period ................................. 100,010 21,810 --------- --------- Cash and cash equivalents, end of period ....................................... $ 23,436 $ 38,403 ========= ========= Supplementary information -- cash paid during the period for: Interest .................................................................... $ 27,039 $ 16,517 Income taxes ................................................................ $ 435 955
The accompanying notes are an integral part of these condensed consolidated financial statements. - 5 - CALPINE CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 1997 1. Organization and Operation of the Company Calpine Corporation ("Calpine"), a Delaware corporation, and subsidiaries (collectively, the "Company") are engaged in the development, acquisition, ownership and operation of power generation facilities and the sale of electricity and steam in the United States and selected international markets. The Company has interests in and operates natural gas- fired cogeneration facilities, geothermal steam fields and geothermal power generation facilities. 2. Summary of Significant Accounting Policies Basis of Interim Presentation -- The accompanying interim condensed consolidated financial statements of the Company have been prepared by the Company, without audit by independent public accountants, pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the condensed consolidated financial statements include all and only normal recurring adjustments necessary to present fairly the information required to be set forth therein. Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted from these statements pursuant to such rules and regulations and, accordingly, should be read in conjunction with the audited consolidated financial statements of the Company included in the Company's annual report on Form 10-K for the year ended December 31, 1996. The results for interim periods are not necessarily indicative of the results for the entire year. Earnings Per Share -- Earnings per share is calculated using the weighted average number of common shares and common equivalent shares, unless antidilutive, using the treasury stock method for outstanding stock options. For 1996, net income per share also gives effect to common equivalent shares from convertible preferred shares from the original date of issuance that automatically converted to common shares upon completion of the Company's initial public offering in September 1996 (using the if-converted method). In February 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share, which simplifies the standards for computing earnings per share previously found in Accounting Principles Board Opinion ("APBO") No. 15. SFAS No. 128 replaces the presentation of primary earnings per share with a presentation of basic earnings per share, which excludes dilution. SFAS No. 128 also requires dual presentation of basic and diluted earnings per share on the face of the income statement for all entities with complex capital structures and requires a reconciliation. Diluted earnings per share is computed similarly to fully diluted earnings per share pursuant to APBO No. 15. SFAS No. 128 must be adopted for financial statements issued for periods ending after December 15, 1997, including interim periods; earlier application is not permitted. SFAS No. 128 requires restatement of all prior-period earnings per share data presented. For the three and six months ended June 30, 1997, basic and diluted earnings per share would not be materially different than the earnings per share presented in the accompanying condensed consolidated statement of operations. Capitalized interest -- The Company capitalizes interest on projects during the construction period. For the three and six months ended June 30, 1997, the Company capitalized $723,000 and $1.3 million, respectively, of interest in connection with the construction of the Pasadena Power Plant. No interest was capitalized in 1996. Derivative Financial Instruments -- The Company engages in activities to manage risks associated with changes in interest rates. The Company has entered into swaps to reduce exposure to interest rate fluctuations in connection with certain debt commitments. The instruments' cash flows mirror those of the underlying exposures. Unrealized gains and losses relating to the instruments are being deferred over the lives of the contracts. The premiums paid on the instruments, as measured at inception, are being amortized over their respective lives as components of interest expense. Any gains or losses realized upon the early termination of these instruments are deferred and recognized in income over the remaining life of the underlying exposure. - 6 - CALPINE CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) June 30, 1997 At June 30, 1997, the Company had $151.7 million of interest rate swaps on non-recourse project financing and $182.0 million of treasury rate locks and enhanced forwards on senior notes issued by the Company in July 1997. During July 1997, the Company extinguished non-recourse project financing related to $64.2 million of interest rate hedges and terminated one swap related to $9.2 million of hedged debt. Reclassifications -- Prior year amounts in the consolidated condensed financial statements have been reclassified where necessary to conform to the 1997 presentation. 3. Accounts Receivable and Notes Receivable Accounts receivable from related parties as of June 30, 1997 and December 31, 1996 are comprised of the following (in thousands): June 30, December 31, 1997 1996 ------ ------ (unaudited) O.L.S. Energy-Agnews, Inc. ....... $ 833 $ 687 Geothermal Energy Partners, Ltd. . 191 350 Sumas Cogeneration Company, L.P. . 351 590 Texas Cogeneration Company ("TCC") 29 -- Electrowatt Ltd. and subsidiaries 314 1,199 ------ ------ $1,718 $2,826 ====== ====== Notes receivable from related parties as of June 30, 1997 and December 31, 1996 are comprised of the following (in thousands): June 30, December 31, 1997 1996 --------- -------- (unaudited) Darrel Jones ..................... $ 18,781 $ 18,182 Cogenron, Inc. (subsidiary of TCC) 47,688 -- Clear Lake Cogeneration, L.P. ..... (subsidiary of TCC) ............ 99,997 -- --------- -------- $166,466 $ 18,182 ========= ======== Darrel Jones is the sole shareholder of Sumas Energy, Inc., the Company's partner in Sumas Cogeneration Company, L.P. (see Note 4). See Note 5 for information regarding TCC. - 7 - CALPINE CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) June 30, 1997 4. Investments in Power Projects The Company has unconsolidated investments in power projects which are accounted for under the equity method. Unaudited financial information for the six months ended June 30, 1997 and 1996 related to these investments is as follows (in thousands):
1997 1996 ---------------------------------------------------------- ------------------------------------------ Sumas O.L.S. Geothermal Sumas O.L.S. Geothermal Cogeneration Energy- Energy Texas Cogeneration Energy- Energy Company, Agnews, Partners, Cogeneration Company, Agnews, Partners, L.P. Inc. Ltd. Company L.P. Inc. Ltd. -------------- --------- ------------- ------------- -------------- ---------- ------------- Revenue .............. $19,354 $ 6,020 $11,584 $ 5,786 $21,561 $ 4,604 $ 9,576 Operating expenses ... 7,325 5,654 4,982 4,855 12,752 4,349 6,219 ------- ------- ------- ------- ------- ------- ------- Income (loss) from operations ......... 12,029 366 6,602 931 8,809 255 3,357 Other expenses, net .. 5,167 1,170 1,784 236 5,098 1,040 2,444 ------- ------- ------- ------- ------- ------- ------- Net income (loss) $ 6,862 $ (804) $ 4,818 $ 695 $ 3,711 $ (785) $ 913 ======= ======= ======= ======= ======= ======= ======= Company's share of net income (loss) ...... $ 3,906 $ (124) $ 224 $ 158 $ 1,855 $ (179) $ 37 ======= ======= ======= ======= ======= ======= =======
5. Texas Cogeneration Company Transaction On June 23, 1997, Calpine completed the acquisition of a 50% equity interest in the Texas City cogeneration facility (the "Texas City Power Plant") and the Clear Lake cogeneration facility (the "Clear Lake Power Plant") for a total purchase price of $35.4 million, subject to final adjustments. The Company acquired its 50% interest in these plants through the acquisition of 50% of the capital stock of Enron Dominion Cogen Corp. ("EDCC") from Enron Power Corp., a wholly owned subsidiary of Enron Corp. ("Enron"). EDCC was subsequently renamed Texas Cogeneration Company ("TCC"). The other 50% shareholder interest in TCC is owned by Dominion Cogen, Inc. In addition to the purchase of 50% of the stock of TCC, Calpine, through its wholly owned subsidiary, Calpine Finance Company ("CFC"), purchased from the existing lenders the $155.6 million of outstanding non-recourse project debt of the Texas City Power Plant (approximately $53.0 million) and the Clear Lake Power Plant (approximately $102.6 million). The acquisition of the capital stock of TCC and the purchase of the outstanding debt from the existing lenders were financed with approximately $125.0 million of non-recourse debt provided by The Bank of Nova Scotia, $14.3 million of borrowings from the revolving line of credit, and $55.8 million of equity provided by the Company (see Notes 7 and 8 for more information regarding the revolving line of credit and the $125.0 million of non-recourse debt). The Company accounts for its investment in TCC under the equity method because control of TCC is deemed to be shared with Dominion Cogen, Inc. The Texas City and Clear Lake Power Plants are operated by the Company under a one-year contract with automatic renewal provisions. Texas City Power Plant -- The Texas City Power Plant is a 450 megawatt natural gas-fired combined-cycle cogeneration facility located in Texas City, Texas. The Texas City Power Plant commenced commercial operation in June 1987. Electricity generated by the Texas City Power Plant is sold under two separate long-term agreements to (i) Texas Utilities Generating Company ("TUEC") under an original 12-year power sales agreement terminating in June 1999 and (ii) Union Carbide Company ("UCC") under an original 12-year power sales agreement terminating in June 1999. Each power sales agreement contains provisions for capacity and energy. The TUEC power sales agreement provides for a firm capacity payment for 410 megawatts. The UCC power sales agreement provides for a firm capacity payment for 20 megawatts. - 8 - CALPINE CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) June 30, 1997 Natural gas requirements for the Texas City Power Plant are allocated between UCC, DEI Texas, Inc. ("DEI"), an affiliate of Dominion Cogen Inc., and Enron Capital and Trading Corporation ("ECT") pursuant to a contractual arrangement. UCC and DEI currently provide approximately 25% and 56%, respectively, of the fuel requirements of the Texas City Power Plant. The three fuel contracts are effective through June 1999. Under the fuel contracts, approximately 19% of the total fuel requirements of the Texas City Power Plant is supplied at spot market prices. The remainder is purchased at fixed rates which are currently above spot market prices. Clear Lake Power Plant -- The Clear Lake Power Plant is a 377 megawatt natural gas/hydrogen-fired combined-cycle cogeneration facility located in Pasadena, Texas. The Clear Lake Power Plant commenced commercial operation in December 1984. Electricity generated by the Clear Lake Power Plant is sold under three separate long-term agreements to (i) Texas New Mexico Power Company ("TNP") under an original 20-year power sales agreement terminating in 2004, (ii) Houston Light & Power Company ("HL&P") under an original 10-year power sales agreement terminating in 2005, and (ii) Hoescht Celanese Chemical Group ("HCCG") under an original 10-year power sales agreement terminating in 2004. Each power sales agreement contains provisions for capacity and energy payments. The TNP power sales agreement provides for a firm capacity payment of production between 200 and 250 megawatts based on 98% of HL&P's tariff under its TNP contract. The HL&P power sales agreement provides for firm capacity payment for 50 megawatts for the term of the agreement, subject to adjustment under certain specified conditions. The HCCG power sales agreement provides for firm capacity payment for 35 megawatts for the term of the agreement. The TNP energy price is based on 98% of HL&P's tariff under its TNP contract. HL&P's and HCCG's energy payments are based on HL&P's weighted average cost of gas, or contractual heat rates and operations and maintenance adder. The natural gas for the Clear Lake Power Plant is purchased primarily from TCC, which receives its fuel from ECT on a tiered price basis consisting of a fixed priced tier escalating at 5% annually and two index-priced tiers. A small portion of the natural gas requirements is purchased from ECT at index prices. In addition, the facility burns hydrogen provided by HCCG, amounting to approximately 5% of the Clear Lake Power Plant's total fuel requirements. 6. Calpine Gas Company Transaction On January 31, 1997, the Company acquired the outstanding capital stock of Montis Niger, Inc., a natural gas production company, and certain gas reserves from Radnor Power, a wholly-owned subsidiary of LFC Financial Corp., for $7.1 million. In addition, the Company paid $824,000 for certain working capital items. The Company's allocation of the purchase price is subject to final adjustments. Montis Niger, subsequently renamed to Calpine Gas Company, owns proven natural gas reserves and an 80-mile pipeline system which provides gas to the Company's Greenleaf 1 and 2 Power Plants in northern California. The Company paid $7.6 million in cash for a portion of the purchase price and working capital items, and recorded a $600,000 liability for the remainder of the purchase price due upon completion of certain drilling obligations. 7. Revolving Credit Facility At June 30, 1997, the Company had a $50.0 million credit facility available with a consortium of commercial lending institutions which include The Bank of Nova Scotia, International Nederlanden U.S. Capital Corporation, Sumitomo Bank of California and Canadian Imperial Bank of Commerce. At June 30, 1997, the Company had $14.3 million of borrowings and $2.7 million of letters of credit outstanding under the credit facility. Borrowings bear interest at The Bank of Nova Scotia's base rate plus an applicable margin or at the London Interbank Offered Rate ("LIBOR") - 9 - CALPINE CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) June 30, 1997 plus an applicable margin (approximately 9.4% at June 30, 1997). Interest is paid on the last day of each interest period for such loans, but not less often than quarterly. The credit agreement expires in September 1999. On July 1, 1997, the Company had an additional $6.0 million of letters of credit outstanding related to the purchase of firm capacity and energy between HL&P and the Clear Lake Power Plant. On July 8, 1997, the Company repaid the $14.3 million of borrowings with proceeds from the 8-3/4% Senior Notes Due 2007 (see Note 9). 8. Non-Recourse Project Financing Note Payable to Bank -- On June 23, 1997, the Company entered into a $125.0 million non-recourse financing with The Bank of Nova Scotia, the proceeds of which were utilized for the acquisition of the 50% interest in TCC and the purchase from the lenders of $155.6 million of outstanding non-recourse project debt (see Note 5). The $125.0 million non-recourse financing matures on June 22, 1998 and is expected to be repaid prior to maturity with the proceeds of a planned refinancing of the $155.6 million non-recourse project debt. On June 30, 1997, $119.3 million of borrowings were outstanding which bear interest at The Bank of Nova Scotia's base rate plus an applicable margin or at LIBOR plus an applicable margin (approximately 7.0% at June 30, 1997). In July 1997, the Company utilized existing swap arrangements to minimize the impact of potential changes in interest rates on the project debt. The effective interest rate including the effect of the existing swap arrangement was approximately 8.4%. Senior-Term and Junior Term Loans -- The Company entered into the Senior-Term and Junior Term Loans in connection with the Company's acquisition of Calpine Geysers Company in 1993. On June 30, 1997, $102.7 million of such loans were outstanding. On July 8, 1997, the Company repaid all Senior-Term and Junior-Term Loans before their maturity date from the proceeds of the 8-3/4% Senior Notes Due 2007 (see Note 9). In connection with this transaction, the Company terminated one swap transaction and retained one swap transaction. The Company had entered into these swap transactions to minimize the impact of changes in interest rates on a portion of the Senior- Term loans and had an effective rate of 9.9% on June 30, 1997. 9. Senior Notes Due 2007 On July 8, 1997, the Company issued $200.0 million aggregate principal amount of 8-3/4% Senior Notes Due 2007. The net proceeds of $195.0 million were used as follows: (i) $102.7 million to repay non-recourse project financing related to Calpine Geysers Company, (ii) $6.4 million to repay a note payable to Natomas Energy Company related to the purchase of Thermal Power Company which matures in September 1997, (iii) $14.3 million to repay borrowings under The Bank of Nova Scotia Revolving Credit Facility, (iv) $728,000 to repay a note payable to Santa Fe Geothermal, Inc. which matures in December 1997, and (v) approximately $70.9 million for general corporate purposes. Transaction costs incurred in connection with the debt offering were recorded as a deferred charge and are amortized over the ten-year life of the 8-3/4% Senior Notes Due 2007 using the effective interest rate method. In May and June 1997, the Company executed five interest rate hedging transactions related to debt with a notational value of $182.0 million and designed to eliminate interest rate risk for the period from May 1997 to July 8, 1997 when the 8-3/4% Senior Notes Due 2007 were priced. These interest rate hedging transactions were designated as a hedge of the anticipated bond offering, and the resulting $3.0 million cost resulting from the hedges is amortized over the life of the bond. The effective interest rate after the hedging transactions and the amortization of deferred costs is 9.0%. The 8-3/4% Senior Notes Due 2007 will mature on July 15, 2007. The Company has no sinking fund or mandatory redemption obligations with respect to the 8-3/4% Senior Notes Due 2007. Interest is payable semi-annually on January 15 and July 15 of each year while the 8-3/4% Senior Notes Due 2007 are outstanding, commencing on January 15, 1998. - 10 - CALPINE CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) June 30, 1997 10. Preferred Share Purchase Rights On June 5, 1997, the Board of Directors adopted a Stockholders Right Plan to strengthen the Board's ability to protect Calpine's stockholders. The Rights Plan is designed to protect against abusive or coercive takeover tactics that are not in the best interests of Calpine and its stockholders. To implement the Rights Plan, the Board of Directors declared a dividend of one preferred share purchase right (a "Right") for each outstanding share of Common Stock, par value $0.001 per share, held on record as of June 18, 1997. On June 30, 1997, there were 19,905,233 Rights outstanding. Each Right initially represents a contingent right to purchase, under certain circumstances, one one-thousandth of a share (a "Unit") of Series A Junior Participating Preferred Stock, par value $0.001 per share (the "Preferred Stock"), of the Company at a price of $80.00 per Unit, subject to adjustment. The Rights become exercisable and trade independently from Calpine's Common Stock upon the public announcement of the acquisition by a person or group of 15% or more of the Company'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 the Company's Common Stock. Each Unit of Preferred Stock purchased upon exercise of the Rights will be entitled to a dividend equal to any dividend declared per share of Common Stock and will have one vote, voting together with the Common Stock. In the event of liquidation, each unit of 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 the Company's Common Stock, each Right will entitle its holder to purchase, at the Right's exercise price, a number of the acquiring company's common shares having a market value of twice such 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 Preferred Stock or shares of Common Stock having a market value of twice such exercise price. The Rights expire June 18, 2007 unless redeemed earlier by Calpine's Board of Directors. The rights can be redeemed by the Board at a price of $0.01 per Right at any time before the Rights become exercisable, and thereafter only in limited circumstances. 11. Contingencies CPUC Restructuring -- Electricity and steam sales agreements with PG&E are regulated by the California Public Utilities Commission ("CPUC"). In December 1995, the CPUC proposed the transition of the electric generation market to a competitive market beginning January 1, 1998, with all consumers participating by 2003. Since the proposed restructure results in widespread impact on the market structure and requires participation and oversight of the Federal Energy Regulatory Commission ("FERC"), the CPUC has sought to build a California consensus involving the legislature, the Governor, public and municipal utilities and customers. The consensus has resulted in filings with the FERC which should permit both the CPUC and FERC to collectively proceed with implementation of the new competitive market structure. On September 23, 1996, state legislation was passed, AB 1890 (the "Bill"), which codified much of the CPUC decision and directed the CPUC to proceed with implementation of restructure no later than January 1, 1998. The Bill accelerated the transition period to a fully competitive market from five years to four years with all consumers participating by the year 2002. The Bill provided for an electricity rate freeze for the period of transition and mandated through issuance of rate reduction bonds a 10% rate reduction for small commercial and residential customers effective January 1, 1998. The proposed restructuring provides for phased-in customer choice (direct access), development of a non-discriminatory market structure, full recovery of utility stranded costs, sanctity of existing contracts, and continuation of existing public policy programs including funds for enhancement of in-state renewable energy technologies during the transition period. In May 1997, the CPUC ruled that all utility customers will be able to choose their electricity supplier beginning January 1, 1998. The Company cannot predict the final form or timing of the proposed restructuring and the impact, if any, that such restructuring would have on the Company's - 11 - CALPINE CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) June 30, 1997 existing business or results of operations. The Company believes that any such restructuring would not have a material effect on its power sales agreements and, accordingly, believes that its existing business and results of operations would not be materially adversely affected, although there can be no assurance in this regard. Litigation -- The Company is involved in various claims and legal actions arising out of the normal course of business. Management believes that these matters will not have a material impact on the financial position or results of operations of the Company, although there can be no assurance in this regard. - 12 - ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Except for historical financial information contained herein, the matters discussed in this quarterly report on Form 10-Q may be considered "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended and subject to the safe harbor created by the Securities Litigation Reform Act of 1995. Such statements include declarations regarding the intent, belief or current expectations of the Company and its management. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties; actual results could differ materially from those indicated by such forward-looking statements. Among the important factors that could cause actual results to differ materially from those indicated by such forward-looking statements are: (i) that the information is of a preliminary nature and may be subject to further adjustment, (ii) the possible unavailability of financing, (iii) risks related to the development, acquisition and operation of power plants, (iv) the impact of avoided cost pricing and energy price fluctuations, (v) the impact of curtailment, (vi) the seasonal nature of the Company's business, (vii) start-up risks, (viii) general operating risks, (ix) the dependence on third parties, (x) risks associated with international investments, (xi) risks associated with the power marketing business, (xii) changes in government regulation, (xiii) the availability of natural gas, (xiv) the effects of competition, (xv) the dependence on senior management, (xvi) volatility in the Company's stock price, (xvii) fluctuations in quarterly results and seasonality, and (xviii) other risks identified from time to time in the Company's reports and registration statements filed with the Securities and Exchange Commission. OVERVIEW Calpine is engaged in the acquisition, development, ownership and operation of power generation facilities and the sale of electricity and steam in the United States and selected international markets. The Company has interests in 17 power generation facilities and steam fields having an aggregate capacity of 1,874 megawatts. In addition, Calpine has a 240 megawatt gas-fired power generation facility under construction in Pasadena, Texas and pending acquisitions, subject to the fulfillment of all required conditions, of 50% interests in two gas-fired facilities with an aggregate capacity of 390 megawatts in Virginia and Florida. On January 31, 1997, the Company acquired the Calpine Gas Fields (formerly the Montis Niger Gas Fields) for a total price of approximately $7.1 million plus $824,000 for certain working capital items. The Calpine Gas Fields have 9.7 billion cubic feet of estimated proven gas reserves and an 80-mile pipeline system which provide gas to the Company's Greenleaf 1 and 2 Power Plants. In February 1997, the Company commenced construction of a 240 megawatt gas-fired cogeneration project at the Phillips Houston Chemical Complex ("HCC") located in Pasadena, Texas (the "Pasadena Cogeneration Project"). The Company has entered into an agreement to supply HCC with approximately 90 megawatts, with the remainder of available electricity output to be sold into the competitive market. The Pasadena Cogeneration Project is the first merchant power plant to be financed with non-recourse project debt and is scheduled to be operational in 1998. In February 1997, the Company announced the development of a 480 megawatt gas-fired cogeneration project in Sutter County, in northern California (the "Sutter Cogeneration Project"). The Sutter Cogeneration Project would be northern California's first merchant power plant. The Sutter Cogeneration project is expected to provide electricity to the deregulated California power market commencing in the year 2000. The Company is currently pursuing regulatory agency permits for this project. On May 16, 1997, the Company entered into agreements to acquire 50% interests in the 240 megawatt Gordonsville Power Plant located west of Richmond, Virginia and the 150 megawatt Auburndale Power Plant located outside of Orlando, Florida. The Company currently expects to complete the acquisition upon the fulfillment of all required conditions. However, there can be no assurances that the Company will successfully complete this acquisition. - 13 - On June 23, 1997, the Company completed the acquisition of a 50% equity interest in the 450 megawatt Texas City Power Plant and the 377 megawatt Clear Lake Power Plant for an aggregate purchase price of $35.4 million. As a part of that acquisition, the Company entered into a $125.0 million non-recourse financing agreement with The Bank of Nova Scotia, the proceeds of which were utilized for the acquisition of the 50% equity interest and the purchase of $155.6 million of outstanding non-recourse project debt associated with the Texas City and Clear Lake Power Plants. The Company accounts for its 50% share of earnings from the Texas City and Clear Lake Power Plants under the equity method of accounting and such earnings are included in "income from unconsolidated investments in power projects". Included in the results of operations for the three and six months ended June 30, 1997 are the King City and Gilroy Power Plants which each have a generating capacity of 120 megawatts. The King City Power Plant has been included in the Company's consolidated results of operations since the May 2, 1996 effective date of the operating lease, and the Gilroy Power Plant since its acquisition on August 29, 1996. As scheduled by PG&E and in accordance with their respective power sales agreements, the King City and Gilroy Power Plants did not generate electricity during the four months ended April 30, 1997. As scheduled, both power plants resumed operation on May 1, 1997. Each of the Company's consolidated power plants produces electricity for sale to a utility or, in certain instances, other third-party purchasers. Thermal energy produced by the gas-fired cogeneration facilities is sold to governmental and industrial users, and steam produced by the geothermal steam fields is sold to utility-owned power plants. The electricity, thermal energy and steam generated by these facilities are typically sold pursuant to long-term, take-and- pay power or steam sales agreements generally having original terms of 20 or 30 years. The Company has a net interest of 421 megawatts of the aggregate capacity generated by nine power plants that deliver electricity to Pacific Gas and Electric Company ("PG&E") under separate long-term power sales agreements. Each of these agreements provides for both capacity payments and energy payments for the term of the agreement. During the initial ten-year period of certain agreements, PG&E pays a fixed price for each unit of electrical energy according to schedules set forth in such agreements (which represent 17%, or 73 megawatts, of such net interest). The fixed price periods under these power sales agreements expire at various times from 1998 through 2000. After the fixed price periods expire, while the basis for the capacity and capacity bonus payments under these power sales agreements remains the same, the energy payments adjust to PG&E's then avoided cost of energy, which is determined and published each month by the utility. The term "avoided cost" refers to the incremental costs that an electric utility would incur to produce or purchase an amount of power equivalent to that purchased from QFs. On December 9, 1996, the CPUC approved a new methodology for the calculation of short-run avoided cost ("SRAC"), which was effective retroactive to October 1, 1996 and will continue until the independent power exchange has commenced operations and is functioning properly. The independent power exchange is scheduled to commence operations on January 1, 1998. Thereafter, the SRAC will become the energy clearing price of the independent power exchange. The currently prevailing SRAC is substantially lower than the fixed energy prices under these power sales agreements and is generally expected to remain so. While SRAC does not affect capacity payments under the power sales agreements, in the event that the SRAC does not increase significantly, the Company's energy revenues under these power sales agreements would be materially reduced at the expiration of the fixed price period. Such reduction may have a material adverse effect on the Company's results of operations. The Company cannot predict the likely level of SRAC prices at the expiration of the fixed price periods. The majority of the capacity revenues are paid during the months of May through October. Prices paid for the steam delivered by the Company's steam fields are based on a formula that partially reflects the price levels of nuclear and fossil fuels, and therefore, a reduction in the price levels of such fuels may reduce revenue under the steam sales agreements for the steam fields. Certain of the Company's power and steam sales agreements contain curtailment provisions under which the purchasers of energy or steam are entitled to reduce the number of hours of energy or amount of steam purchased thereunder. For the year ended December 31, 1996, certain of the Company's power generation facilities experienced maximum curtailment primarily as a result of low gas prices and a high degree of precipitation during the period which resulted in high levels of energy generation by hydroelectric power facilities that supply electricity. For the three and six months ended June 30, 1997, such facilities experienced a reduced amount of curtailment compared to the same periods in 1996. Due to an amendment to the power sales contracts executed in April 1997, the Company currently does not expect curtailment during the remainder of the term of the power sales agreements for these power plants. - 14 - Many states are implementing or considering regulatory initiatives designed to increase competition in the domestic power generation industry. In December 1995, the CPUC issued an electric industry restructuring decision which envisions commencement of deregulation and implementation of customer choice of electricity supplier by January 1, 1998. Legislation implementing this decision was adopted in September 1996. As part of its policy decision, the CPUC indicated that power sales agreements of existing qualifying facilities would be honored. The Company cannot predict the final form or timing of the proposed restructuring and the impact, if any, that such restructuring would have on the Company's existing business or results of operation. The Company believes that any such restructuring would not have a material effect on its power sales agreements and, accordingly, believes that its existing business and results of operations would not be materially adversely affected, although there can be no assurance in this regard. SELECTED OPERATING DATA Set forth below is certain selected operating information for the power plants and steam fields for which results are consolidated in the Company's statement of operations. The information set forth under power plants consists of the results for the West Ford Flat and Bear Canyon Power Plants, the Greenleaf 1 and 2 Power Plants, the Watsonville Power Plant, the King City Power Plant since May 2, 1996, and the Gilroy Power Plant since August 29, 1996. The information set forth under steam fields consists of the results for the PG&E Unit 13 and Unit 16 Steam Fields, the SMUDGEO #1 Steam Fields and the Calpine Thermal Steam Fields (dollar amounts in thousands, except per kilowatt hour amounts).
Three Months Ended Six Months Ended June 30, June 30, ------------------------ ------------------------ 1997 1996 1997 1996 --------- --------- --------- --------- Power Plants Electricity revenues Energy $ 25,293 $ 19,022 $ 44,270 $ 34,362 Capacity $ 26,762 $ 18,208 $ 31,943 $ 19,774 Megawatt hours produced 552,057 408,413 820,666 739,088 Average energy rate per kilowatt hour produced $ 0.0458 $ 0.0466 $ 0.0539 $ 0.0465 Steam Fields Steam revenues $ 10,584 $ 9,025 $ 20,113 $ 17,895 Megawatt hours produced 672,233 485,389 1,279,071 1,041,428 Average energy rate per kilowatt hour produced $ 0.0157 $ 0.0186 $ 0.0157 $ 0.0172
Electric energy and capacity revenue increased for the three and six months ended June 30, 1997 compared to the same periods in 1996, primarily due to the Gilroy and King City Power Plants. Megawatt hours produced by power plants increased in 1997 compared to the same periods in 1996, primarily due to 121,000 megawatt hours produced by the Gilroy Power Plant for the three and six months ended June 30, 1997. The Gilroy Power Plant was acquired by the Company in August 1996. During the six months ended June 30, 1997, Greenleaf 1 Power Plant production declined by 51,000 megawatt hours as it did not operate for the period from January 1 to February 26, 1997 due to flooding in the vicinity of the power plant. The average energy rate per kilowatt hour produced for all power plants declined for the three months ended June 30, 1997 compared to the same period in 1996, primarily due to lower priced Gilroy energy production. The average energy rate per kilowatt hour produced for all power plants increased for the six months ended June 30, 1997 compared to the same period in 1996, reflecting increases in the average energy prices per kilowatt hour produced during 1997 at certain gas-fired power plants. Steam field megawatt hours produced increased for the three and six months ended June 30, 1997 compared to the same periods in 1996, primarily due to more production and less curtailment during 1997. During 1996, PG&E Unit 13 was shut down from March 23 to May 25 for installation of a new turbine rotor. In addition, the SMUDGEO#1 power plant was shut down from April 21 to June 5, 1996 for a scheduled overhaul. The average - 15 - energy rates per kilowatt hour produced during 1997 were lower than the prices for the comparable periods in 1996, primarily due to lower prices in accordance with the power sales agreements. OTHER FINANCIAL DATA AND RATIOS Set forth below are certain other financial data and ratios for the periods indicated (in thousands, except ratio data):
Three Months Ended Six Months Ended June 30, June 30, ------------------------- -------------------------- 1997 1996 1997 1996 ----------- --------- --------- -------- Depreciation and amortization $ 12,216 $ 8,475 $ 23,548 $15,350 Interest expense per indenture $ 14,453 $ 11,528 $ 28,621 $20,081 EBITDA $ 43,218 $ 27,783 $ 62,697 $41,136 EBITDA to interest expense per indenture 2.99x 2.41x 2.19x 2.05x
EBITDA is defined as income from operations plus depreciation, capitalized interest, other income, non-cash charges and cash received from investments in power projects, reduced by the income from unconsolidated investments in power projects. EBITDA is presented not as a measure of operating results, but rather as a measure of the Company's ability to service debt. EBITDA should not be construed as an alternative either (i) to income from operations (determined in accordance with generally accepted accounting principles) or (ii) to cash flows from operating activities (determined in accordance with generally accepted accounting principles). Interest expense per indenture is defined as total interest expense plus one-third of all operating lease obligations, dividends paid in respect to preferred stock and cash contributions to any employee stock ownership plan used to pay interest on loans to purchase capital stock of the Company. RESULTS OF OPERATIONS Three and Six Months Ended June 30, 1997 Compared to Three and Six Months Ended June 30, 1996 Revenue. Total revenue was $67.7 million and $107.0 million for the three and six months ended June 30, 1997 compared to $50.3 million and $82.0 million for the comparable periods in 1996. Electricity and steam sales revenue increased 35% and 34% to $62.6 million and $96.3 million for the three and six months ended June 30, 1997 compared to $46.3 million and $72.0 million for the comparable periods in 1996. The increase for the three months ended June 30, 1997 was primarily due to $11.0 million of revenue from the Gilroy Power Plant acquired in August 1996, $1.4 million of higher revenue from the King City Power Plant (included in Company operations since May 1996), and $3.4 million of higher revenue from the Company's geothermal facilities. The increase for the six months ended June 30, 1997 was primarily due to $13.5 million of revenue from the Gilroy Power Plant, $2.6 million of higher revenue from the King City Power Plant, $5.9 million of higher revenue from the Company's geothermal power plants, and $2.4 million due to increased prices or production at other Company gas-fired power plants. As scheduled, the King City and Gilroy Power Plants did not generate electrical energy and did not earn energy revenue during the four months ended April 30, 1997. Included in geothermal revenue are revenue from the West Ford Flat and Bear Canyon Power Plants which increased by $1.8 million and $3.7 million for the three and six months ended June 30, 1997 compared to the same periods in 1996, primarily due to increased kilowatt hour generation. The West Ford Flat and Bear Canyon Power Plants were curtailed under their power sales agreements for approximately $251,000 and $1.9 million of revenue during the three and six months ended June 30, 1997, compared to approximately $2.3 million and $4.9 million of revenue during the same periods in 1996. Thermal Power Company also contributed $859,000 and $1.8 million more revenue for the three and six months ended June 30, 1997 than the same periods in 1996 due to increased steam sales under the alternative pricing agreement entered into with PG&E in March 1996. Service contract revenue decreased 39% and 35% to $1.7 million and $2.8 for the three and six months ended June 30, 1997 compared to $3.5 and $5.4 million primarily due to overhauls at the Aidlin and Agnews power plants during 1996. Income from unconsolidated investments in power projects increased to $2.1 million and $4.2 million for the three and six months ended June 30, 1997 compared to $298,000 and $1.7 million for the same periods in 1996. The increase is primarily attributable to increased equity income from the Company's investment - 16 - in Sumas Cogeneration Company, L.P. ("Sumas"). The increase in Sumas income was primarily due to lower operating costs in 1997 as the plant operated at minimum capacity from February to June 1997 in accordance with the the power sales agreement. However, Sumas also received a higher price for energy sold and certain other payments from Puget Sound Power and Light Company under the power sales agreement. In addition, operating costs were lower in 1997 Interest income on loans to power projects increased 41% and 4% to $1.3 million and $3.0 million for the three and six months ended June 30, 1997 compared to $920,000 and $2.8 million for the comparable periods in 1996, primarily related to interest income on the loans to the sole shareholder of Sumas Energy, Inc., the Company's partner in the Sumas project. Cost of revenue. Cost of revenue increased 24% and 32% to $37.2 million and $67.8 million for the three and six months ended June 30, 1997 compared to $30.0 million and $51.3 million for the comparable periods in 1996. The increase was primarily due to plant operating, depreciation and operating lease expenses attributable to the operations of the King City and Gilroy Power Plants which have been included in the Company's operations since May 2, 1996 and August 29, 1996, respectively. Project development expenses increased to $1.8 million and $3.9 million for the three and six months ended June 30, 1997 compared to $894,000 and $1.4 million for the same periods in 1996. The increase was due primarily to expanded business acquisition and development activities. General and administrative expenses. General and administrative expenses increased 38% and 46% to $4.4 million and $8.6 million for the three and six months ended June 30, 1997 compared to $3.2 million and $5.9 million for the same periods in 1996. The increase in 1997 was due to additional personnel and related expenses necessary to support the Company's expanded operations. Interest expense. Interest expense increased to $13.2 million and $26.1 million for the three and six months ended June 30, 1997 compared to $10.4 million and $18.7 million for the comparable periods in 1996. The 27% increase for the three months ended June 30, 1996 compared to the same period in 1996 was attributable to $2.4 million of interest on debt related to the Gilroy Power Plant acquired in August 1996 and $2.4 million of increased interest on the 10 1/2% Senior Notes Due 2006 issued in May 1996, offset by $723,000 of interest capitalized for the construction of the Pasadena Power Plant and a $1.5 million decrease in interest expense primarily as a result of repayments of principal on certain non-recourse project financings and other short-term borrowings. The 40% increase for the six months ended June 30, 1997 compared to the same period in 1996 was attributable to $7.3 million of increased interest expense related to the 10 1/2% Senior Notes Due 2006 issued in May 1996 and $4.7 million of interest on debt related to the Gilroy Power Plant acquired in August 1996, offset by $1.3 million of interest capitalized for the construction of the Pasadena Power Plant and a $3.2 million decrease in interest expense primarily as a result of repayments of principal on certain non-recourse project financings and other short-term borrowings. Other income, net. Other income, net increased to $4.3 million and $7.9 million for the three and six months ended June 30, 1997 compared to $2.2 million and $2.8 million for the same periods in 1996 due to interest earned on higher cash and cash equivalent balances and interest income earned on the collateral securities for the King City Power Plant. Provision for income taxes. The effective income tax rate was approximately 39% and 36% for the three and six months ended June 30, 1997. The effective tax rate differs from the federal statutory rate due to the effect of state tax rates offset by depletion in excess of tax basis benefits at the Company's geothermal facilities. The effective rate for the three and six months ended June 30, 1996 was 41% which approximates federal and state statutory tax rates. - 17 - LIQUIDITY AND CAPITAL RESOURCES The following table summarizes the Company cash flow activities for the periods indicated (in thousands): Six Months Ended June 30, 1997 1996 ---------- ---------- Cash flows from: Operating activities $ 16,800 $ 5,035 Investing activities (220,497) (126,051) Financing activities 127,123 137,609 ---------- ---------- Total $ (76,574) $ 16,593 ========== ========== Operating activities provided $16.8 million for the six months ended June 30, 1997 consisting of approximately $5.4 million of net income from operations, $1.9 million in deferred income taxes, $21.8 million of depreciation and amortization, $15.7 million net decrease in operating assets and liabilities, $6.1 million partnership distribution from unconsolidated investments in power projects and $1.6 million distribution from Coperlasa, offset by $4.2 million of income from unconsolidated investments in power projects. Investing activities used $220.5 million during the six months ended June 30, 1997, primarily due to $192.0 million for the acquisition of Texas Cogeneration Company and the related notes receivable, $39.7 million of capital expenditures related to the construction of the Pasadena Power Plant, $17.9 million of other capital expenditures, $7.6 million for the acquisition of Calpine Gas Company, offset by a $5.7 million loan payment from Texas City and Clear Lake Power Plants, $5.3 million of collateral security maturities in connection with the King City Power Plant and a $29.5 million decrease in restricted cash, primarily related to the Pasadena Power Plant. Financing activities provided $127.1 million of cash during the six months ended June 30, 1997 consisting of $139.3 million of borrowings for the acquisition of Texas Cogeneration Company and the related debt, $3.3 million of borrowings for contingent consideration in connection with the acquisition of the Gilroy Power Plant, offset by $15.9 million repayment of non-recourse project debt. As of June 30, 1997, cash and cash equivalents were $23.4 million and working capital was a negative $77.2 million. For the six months ended June 30, 1997, cash and cash equivalents decreased by $76.6 million and working capital decreased by $173.4 million as compared to the period ended December 31, 1996. The decrease in working capital is primarily due to the use of available cash and proceeds from a non-recourse project financing due June 1998 in the acquisition of Texas Cogeneration Company and in the purchase of the non-recourse project financing of the Texas City and Clear Lake Power Plants. As a developer, owner and operator of power generation projects, the Company may be required to make long-term commitments and investments of substantial capital for its projects. The Company historically has financed these capital requirements with borrowings under its credit facilities, other lines of credit, non-recourse project financing or long-term debt. At June 30, 1997, the Company had outstanding $105.0 million of 9 1/4% Senior Notes Due 2004 which mature on February 1, 2004 and bear interest payable semi-annually on February 1 and August 1 of each year. In addition, the Company had $180.0 million of 10 1/2% Senior Notes Due 2006 which mature on May 15, 2006 and bear interest payable semi-annually on May 15 and November 15 of each year. Under the provisions of the applicable indentures, the Company may, under certain circumstances, be limited in its ability to make restricted payments, as defined, which include dividends and certain purchases and investments, incur additional indebtedness and engage in certain transactions. On July 8, 1997, the Company issued $200.0 million of 8 3/4% Senior Notes Due 2007 which mature on July 15, 2007 and bear interest payable semi-annually of January 15 and July 15 of each year, beginning January 1, 1998. Of the $195.0 million of net proceeds from the sale of the Senior Notes, the Company repaid approximately $124.1 million of existing indebtedness (see Note 9 for use of proceeds and further information). The Company anticipates that a portion of the remaining net proceeds will be used to finance potential future acquisitions. - 18 - At June 30, 1997, the Company had $301.5 million of non-recourse project financing associated with power generating facilities and steam fields at the West Ford Flat Power Plant, the Bear Canyon Power Plant, the PG&E Unit 13 and Unit 16 Steam Fields, the SMUDGEO #1 Steam Fields, the Greenleaf 1 and 2 Power Plants and the Gilroy Power Plant. Utilizing a portion of the net proceeds from the sale of the 8 3/4% Senior Notes Due 2007, on July 8, 1997 the Company extinguished $102.7 million of non-recourse project financing related to the Company's geothermal assets. After such early extinguishment, the annual maturities for all non-recourse project financing were $8.3 million for the remainder of 1997, $9.7 million for 1998, $8.7 million for 1999, $10.4 million for 2000, $10.6 million for 2001 and $149.8 million thereafter. At June 30, 1997, the Company had $119.3 million of non-recourse borrowings from The Bank of Nova Scotia in connection with the acquisition of 50% equity interests in the Texas City and Clear Lake Power Plants. Such debt matures on June 22, 1998 and is expected to be repaid prior to maturity with the proceeds of a planned refinancing of the $155.6 million non-recourse project debt owed by the Texas City and Clear Lake Power Plants. The Company currently has a $50.0 million revolving credit agreement with a consortium of commercial lending institutions led by The Bank of Nova Scotia, with borrowings bearing interest at either LIBOR or at The Bank of Nova Scotia base rate plus a mutually agreed margin. At June 30, 1997, the Company had $14.3 million of borrowings outstanding and $2.7 million of letters of credit outstanding under the revolving credit facility (see Note 7). The Company repaid the $14.3 million of borrowings on July 8, 1997. The Bank of Nova Scotia credit facility contains certain restrictions that significantly limit or prohibit, among other things, the ability of the Company or its subsidiaries to incur indebtedness, make payments of certain indebtedness, pay dividends, make investments, engage in transactions with affiliates, create liens, sell assets and engage in mergers and consolidations. The Company has a $1.2 million working capital line with a commercial lender that may be used to fund short-term working capital commitments and letters of credit. At June 30, 1997, the Company had no borrowings under this working capital line and $974,000 of letters of credit outstanding. Borrowings bear interest at prime plus 1%. At June 30, 1997, the Company had outstanding a non-interest bearing promissory note to Natomas Energy Company in the amount of $6.5 million representing a portion of the September 1994 purchase price of Thermal Power Company. This note had been discounted to yield 8% per annum and was due September 9, 1997. On July 10, 1997, the Company extinguished this debt with the payment of $6.4 million (see Note 9). The Company intends to continue to seek the use of non-recourse project financing for new projects, where appropriate. The debt agreements of the Company's subsidiaries and other affiliates governing the non-recourse project financing generally restrict their ability to pay dividends, make distributions or otherwise transfer funds to the Company. The dividend restrictions in such agreements generally require that, prior to the payment of dividends, distributions or other transfers, the subsidiary or other affiliate must provide for the payment of other obligations, including operating expenses, debt service and reserves. However, the Company does not believe that such restrictions will adversely affect its ability to meet its debt obligations. At June 30, 1996, the Company had commitments for capital expenditures in 1997 totaling $44.2 million related to various projects at its geothermal facilities. The Company intends to fund capital expenditures for the ongoing operation and development of the Company's power generation facilities primarily through the operating cash flow of such facilities. Capital expenditures for the six months ended June 30, 1997 of $57.6 million included $39.7 million for the construction of the Pasadena Power Plant, $8.2 million related to the geothermal facilities and the remaining $9.7 million at the gas-fired power plants. The Company continues to pursue the acquisition and development of new power generation projects. The Company expects to commit significant capital in future years for the acquisition and development of these projects. The Company's actual capital expenditures may vary significantly during any year. The Company believes that it will have sufficient liquidity from cash flow from operations and borrowings available under the lines of credit and working capital to satisfy all obligations under outstanding indebtedness, to finance anticipated capital expenditures and to fund working capital requirements through December 31, 1997. - 19 - Impact of Recent Accounting Pronouncement In February 1997, the FASB issued SFAS No. 128, Earnings Per Share, which simplifies the standards for computing earnings per share previously found in APBO No. 15. SFAS No. 128 replaces the presentation of primary earnings per share with a presentation of basic earnings per share, which excludes dilution. SFAS No. 128 also requires dual presentation of basic and diluted earnings per share on the face of the income statement for all entities with complex capital structures and requires a reconciliation. Diluted earnings per share is computed similarly to fully diluted earnings per share pursuant to APBO No. 15. SFAS No. 128 must be adopted for financial statements issued for periods ending after December 15, 1997, including interim periods; earlier application is not permitted. SFAS No. 128 requires restatement of all prior-period earnings per share data presented. For the three months ended June 30, 1997, basic and diluted earnings per share would not be materially different to the earnings per share presented in the accompanying condensed consolidated statement of operations. In June 1997, the FASB issued SFAS No.130, Reporting Comprehensive Income, which establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in non- condensed general-purpose financial statements. SFAS No.130 requires classification of other comprehensive income by their nature in a financial statement, and the display of the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. SFAS No.130 is effective for fiscal years beginning after December 15, 1997. The Company believes this pronouncement will not have a material effect on its financial statements. In June 1997, the FASB also issued SFAS No.131, Disclosures about Segments of an Enterprise and Related Information, which established standards for the way public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports to shareholders. SFAS No.131 also establishes standards for related disclosures about products and services, geographic areas and major customers. SFAS No.131 is effective for fiscal years beginning after December 15, 1997, although earlier application is encouraged. The Company believes this pronouncement will not have a material effect on its financial statements. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None. ITEM 2. CHANGE IN SECURITIES None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company's Annual Meeting of Stockholders was held on June 5, 1997 (the "Annual Meeting") in San Jose, California. At the Annual Meeting, stockholders voted on two matters: (i) the election of three Class I directors for a term of three years expiring in 2000 and (ii) the ratification of the appointment of Arthur Andersen LLP as independent auditors for the Company for the year ending December 31, 1997. The stockholders elected management's nominees as the Class I directors in an uncontested election and ratified the appointment of independent auditors by the following votes, respectively: - 20 - (i) Election of Class I directors for a three year term expiring in 2000: Votes Votes For Withheld --------------- -------------- Jeffrey E. Garten 13,404,368 18,815 George J. Stathakis 13,403,700 19,483 John O. Wilson 13,404,568 18,615 The Company's Board of Directors is currently comprised of seven members that are divided into three classes with overlapping three-year terms. The term of the Class II directors (Ann B. Curtis and V. Orville Wright) will expire at the annual meeting of stockholders to be held in 1998, and the Class III directors (Peter Cartwright and Susan C. Schwab) will expire at the annual meeting to be held in 1999. (ii) Ratification of appointment of Arthur Andersen LLP as independent auditors: Votes Votes For Against Abstain --------------- -------------- -------------- 13,384,188 913 38,082 ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits The following exhibits are filed herewith unless otherwise indicated: Exhibit 11 Computation of Earnings Per Share Exhibit 27 Financial Data Schedule Exhibit Number Description 3.1 Amended and Restated Certificate of Incorporation of Calpine Corporation, a Delaware corporation. (l) 3.2 Amended and Restated Bylaws of Calpine Corporation, a Delaware corporation. (l) 4.1 Indenture dated as of February 17, 1994 between the Company and Shawmut Bank of Connecticut, National Association, as Trustee, including form of Notes. (a) 4.2 Indenture dated as of May 16, 1996 between the Company and Fleet National Bank, as Trustee, including form of Notes. (m) - 21 - 4.3 Indenture dated as of July 8, 1997, between Calpine Corporation and The Bank of New York, as Trustee, including form of Notes. * 4.4 Registration Rights Agreement dated as of July 1, 1997 by and between Calpine Corporation and Credit Suisse First Boston Corporation, Morgan Stanley & Co. Incorporated, Salomon Brothers Inc., Scotia Capital Markets (USA) Inc., BancAmerica Securities, Inc. and CIBC Wood Gundy Securities Corp. * 10.1 Financing Agreements 10.1.1 Term and Working Capital Loan Agreement, dated as of June 1, 1990, between Calpine Geysers Company, L.P. (formerly Santa Rosa Geothermal Company, L.P.) and Deutsche Bank AG, New York Branch. (a) 10.1.2 First Amendment to Term and Working Capital Loan Agreement, dated as of June 29, 1990, between Calpine Geysers Company, L.P. (formerly Santa Rosa Geothermal Company, L.P.) and Deutsche Bank AG, New York Branch. (a) 10.1.3 Second Amendment to Term and Working Capital Loan Agreement, dated as of December 1, 1990, between Calpine Geysers Company, L.P. (formerly Santa Rosa Geothermal Company, L.P.) and Deutsche Bank AG, New York Branch. (a) 10.1.4 Third Amendment to Term and Working Capital Loan Agreement, dated as of June 26, 1992, between Calpine Geysers Company, L.P. (formerly Santa Rosa Geothermal Company, L.P.), Deutsche Bank AG, New York Branch, National Westminster Bank PLC, Union Bank of Switzerland, New York Branch, and The Prudential Insurance Company of America. (a) 10.1.5 Fourth Amendment to Term and Working Capital Loan Agreement, dated as of April l, 1993, between Calpine Geysers Company, L.P. (formerly Santa Rosa Geothermal Company, L.P.), Deutsche Bank AG, New York Branch, National Westminster Bank PLC, Union Bank of Switzerland, New York Branch, and The Prudential Insurance Company of America. (a) 10.1.6 Construction and Term Loan Agreement, dated as of January 30, 1992, between Sumas Cogeneration Company, L.P., The Prudential Insurance Company of America and Credit Suisse, New York Branch. (a) 10.1.7 Amendment No. 1 to Construction and Term Loan Agreement, dated as of May 24, 1993, between Sumas Cogeneration Company, L.P., The Prudential Insurance Company of America and Credit Suisse, New York Branch. (a) 10.1.8 Credit Agreement-Construction Loan and Term Loan Facility, dated as of January 10, 1990, between Credit Suisse and O.L.S. Energy-Agnews. (a) 10.1.9 Amendment No. 1 to Credit Agreement-Construction Loan and Term Loan Facility, dated as of December 5, 1990, between Credit Suisse and O.L.S. Energy-Agnews. (a) 10.1.10 Participation Agreement, dated as of December 1, 1990, between O.L.S. Energy-Agnews, Nynex Credit Company, Credit Suisse, Meridian Trust Company of California and GATX Capital Corporation. (a) 10.1.11 Facility Lease Agreement, dated as of December 1, 1990, between Meridian Trust Company of California and O.L.S. Energy-Agnews. (a) 10.1.12 Project Revenues Agreement, dated as of December 1, 1990, between O.L.S. Energy-Agnews, Meridian Trust Company of California and Credit Suisse. (a) - 22 - 10.1.13 Project Credit Agreement, dated as of June 30, 1995, between Calpine Greenleaf Corporation, Greenleaf Unit One Associates, Greenleaf Unit Two Associates, Inc. and The Sumitomo Bank, Limited. (g) 10.1.14 Lease dated as of April 24, 1996 between BAF Energy A California Limited Partnership, Lessor, and Calpine King City Cogen, LLC, Lessee. (j) 10.1.15 Credit Agreement, dated as of August 28, 1996, among Calpine Gilroy Cogen, L.P. and Banque Nationale de Paris. (l) 10.1.16 Credit Agreement, dated as of September 25, 1996, among Calpine Corporation and The Bank of Nova Scotia. (m) 10.1.17 Credit Agreement, dated December 20, 1996, among Pasadena Cogeneration L.P. and ING (U.S.) Capital Corporation and The Bank Parties Hereto. (n) 10.1.18 Credit Agreement, dated as of June 23, 1997, among Calpine Finance Company and Certain Commercial Lending Institutions, and The Bank of Nova Scotia as the Agent for the Lenders. * 10.1.19 Purchase agreement dated as of July 1, 1997, among Calpine Corporation and The Bank of New York as the Trustee. * 10.2 Purchase Agreements 10.2.1 Purchase Agreement, dated as of April 1, 1993, between Sonoma Geothermal Partners, L.P., Healdsburg Energy Company, L.P. and Freeport-McMoRan Resource Partners, Limited Partnership. (a) 10.2.2 Stock Purchase Agreement, dated as of June 27, 1994, between Maxus International Energy Company, Natomas Energy Company, Calpine Corporation and Calpine Thermal Power, Inc., and amendment thereto dated July 28, 1994. (b) 10.2.3 Share Purchase Agreement dated March 30, 1995 between Calpine Corporation, Calpine Greenleaf Corporation, Radnor Power Corp. and LFC Financial Corp. (e) 10.2.4 Asset Purchase Agreement, dated as of August 28, 1996, among Gilroy Energy Company, McCormick & Company, Incorporated and Calpine Gilroy Cogen, L.P. (m) 10.2.5 Noncompetition / Earnings Contingency Agreement, dated as of August 28, 1996, among Gilroy Energy Company, McCormick & Company, Incorporated and Calpine Gilroy Cogen, L.P. (m) 10.2.6 Purchase and Sale Agreement dated as of March 27, 1997 between Enron Power Corp. and Calpine Finance Company. * 10.3 Power Sales Agreements 10.3.1 Long-Term Energy and Capacity Power Purchase Agreement relating to the Bear Canyon Facility, dated November 30, 1984, between Pacific Gas & Electric and Calpine Geysers Company, L.P. (formerly Santa Rosa Geothermal Company, L.P.), Amendment dated October 17, 1985, Second Amendment dated October 19, 1988, and related documents. (a) 10.3.2 Long-Term Energy and Capacity Power Purchase Agreement relating to the Bear Canyon Facility, dated November 29, 1984, between Pacific Gas & Electric and Calpine Geysers Company, L.P. (formerly Santa Rosa Geothermal Company, L.P.), and Modification dated November 29, 1984, Amendment dated October 17, 1985, Second Amendment dated October 19, 1988, and related documents. (a) - 23 - 10.3.3 Long-Term Energy and Capacity Power Purchase Agreement relating to the West Ford Flat Facility, dated November 13, 1984, between Pacific Gas & Electric and Calpine Geysers Company, L.P. (formerly Santa Rosa Geothermal Company, L.P.), and Amendments dated May 18, 1987, June 22, 1987, July 3, 1987 and January 21, 1988, and related documents. (a) 10.3.4 Agreement for Firm Power Purchase, dated as of February 24, 1989, between Puget Sound Power & Light Company and Sumas Energy, Inc. and Amendment thereto dated September 30, 1991. (a) 10.3.5 Long-Term Energy and Capacity Power Purchase Agreement, dated April 16, 1985, between O.L.S. Energy-Agnews and Pacific Gas & Electric Company and amendment thereto dated February 24, 1989. (a) 10.3.6 Long-Term Energy and Capacity Power Purchase Agreement, dated November 15, 1984, between Geothermal Energy Partners, Ltd. and Pacific Gas & Electric Company, and related documents. (a) 10.3.7 Long-Term Energy and Capacity Power Purchase Agreement, dated November 15, 1984, between Geothermal Energy Partners, Ltd. and Pacific Gas & Electric Company (see Exhibit 10.3.6 for related documents). (a) 10.3.8 Long-Term Energy and Capacity Power Purchase Agreement, dated December 12, 1984, between Greenleaf Unit One Associates, Inc. and Pacific Gas and Electric Company. (f) 10.3.9 Long-Term Energy and Capacity Power Purchase Agreement, dated December 12, 1984, between Greenleaf Unit Two Associates, Inc. and Pacific Gas and Electric Company. (f) 10.3.10 Long-Term Energy and Capacity Power Purchase Agreement, dated December 5, 1985, between Calpine Gilroy Cogen, L.P. and Pacific Gas and Electric Company, and Amendments thereto dated December 19, 1993, July 18, 1985, June 9, 1986, August 18, 1988 and June 9, 1991. (l) 10.3.11 Amended and Restated Energy Sales Agreement, dated December 16, 1996, between Phillips Petroleum Company and Pasadena Cogeneration, L.P. (n) 10.4 Steam Sales Agreements 10.4.1 Geothermal Steam Sales Agreement, dated July 19, 1979, between Calpine Geysers Company, L.P. (formerly Santa Rosa Geothermal Company, L.P.), and Sacramento Municipal Utility District, and related documents. (a) 10.4.2 Agreement for the Sale and Purchase of Geothermal Steam, dated March 23, 1973, between Calpine Geysers Company, L.P. (formerly Santa Rosa Geothermal Company, L.P.) and Pacific Gas & Electric Company, and related letter dated May 18, 1987. (a) 10.4.3 Thermal Energy and Kiln Lease Agreement, dated as of January 16, 1992, between Sumas Cogeneration Company, L.P. and Socco, Inc., and Amendment thereto dated May 24, 1993. (a) 10.4.4 Amended and Restated Energy Service Agreement, dated as of December l, 1990, between the State of California and O.L.S. Energy-Agnews. (a) 10.4.5 Agreement for the Sale of Geothermal Steam, dated as of July 28, 1992, between Thermal Power Company and Pacific Gas & Electric Company. (c) 10.4.6 Amendment to the Agreement for the Sale of Geothermal Steam, dated as of August 9, 1995, between Union Oil Company of California, NEC Acquisition Company, Thermal Power Company, and Pacific Gas and Electric Company. (h) - 24 - 10.5 Service Agreements 10.5.1 Operation and Maintenance Agreement, dated as of April 5, 1990, between Calpine Operating Plant Services, Inc. (formerly Calpine-Geysers Plant Services, Inc.) and Calpine Geysers Company, L.P. (formerly Santa Rosa Geothermal Company, L.P.). (a) 10.5.2 Amended and Restated Operating and Maintenance Agreement, dated as of January 24, 1992, between Calpine Operating Plant Services, Inc. and Sumas Cogeneration Company, L.P. (a) 10.5.3 Amended and Restated Operation and Maintenance Agreement, dated as of December 31, 1990, between O.L.S. Energy-Agnews and Calpine Operating Plant Services, Inc. (formerly Calpine Cogen-Agnews, Inc.). (a) 10.5.4 Operating and Maintenance Agreement, dated as of January 1, 1995, between Calpine Corporation and Geothermal Energy Partners, Ltd. (h) 10.5.5 Amended and Restated Operating Agreement for the Geysers, dated as of December 31, 1993, by and between Magma-Thermal Power Project, a joint venture composed of NEC Acquisition Company and Thermal Power Company, and Union Oil Company of California. (c) 10.6 Gas Supply Agreements 10.6.1 Gas Sale and Purchase Agreement, dated as of December 23, 1991, between ENCO Gas, Ltd. and Sumas Cogeneration Company, L.P. (a) 10.6.2 Gas Management Agreement, dated as of December 23, 1991, between Canadian Hydrocarbons Marketing Inc., ENCO Gas, Ltd. and Sumas Cogeneration Company, L.P. (a) 10.6.4 Natural Gas Sales Agreement, dated as of November 1, 1993, between O.L.S. Energy-Agnews, Inc. and Amoco Energy Trading Corporation. (a) 10.6.5 Natural Gas Service Agreement, dated November 1, 1993, between Pacific Gas & Electric Company and O.L.S. Energy-Agnews, Inc. (a) 10.7 Agreements Regarding Real Property 10.7.1 Office Lease, dated March 15, 1991, between 50 West San Fernando Associates, L.P. and Calpine Corporation. (a) 10.7.2 First Amendment to Office Lease, dated April 30, 1992, between 50 West San Fernando Associates, L.P. and Calpine Corporation. (a) 10.7.3 Geothermal Resources Lease CA 1862, dated July 25, 1974, between the United States Bureau of Land Management and Calpine Geysers Company, L.P. (formerly Santa Rosa Geothermal Company, L.P.). (a) 10.7.4 Geothermal Resources Lease PRC 5206.2, dated December 14, 1976, between the State of California and Calpine Geysers Company, L.P. (formerly Santa Rosa Geothermal Company, L.P.). (a) 10.7.5 First Amendment to Geothermal Resources Lease PRC 5206.2, dated April 20,1994, between the State of California and Calpine Geysers Company, L.P. (formerly Santa Rosa Geothermal Company, L.P.). (a) 10.7.6 Industrial Park Lease Agreement, dated December 18, 1990, between Port of Bellingham and Sumas Energy, Inc. (a) - 25 - 10.7.7 First Amendment to Industrial Park Lease Agreement, dated as of July 16, 1991, between Port of Bellingham, Sumas Energy, Inc., and Sumas Cogeneration Company, L.P. (a) 10.7.8 Second Amendment to Industrial Park Lease Agreement, dated as of December 17, 1991, between Port of Bellingham and Sumas Cogeneration Company, L.P. (a) 10.7.9 Amended and Restated Cogeneration Lease, dated as of December 1, 1990, between the State of California and O.L.S. Energy-Agnews. (a) 10.8 General 10.8.1 Limited Partnership Agreement of Sumas Cogeneration Company, L.P., dated as of August 28, 1991, between Sumas Energy, Inc. and Whatcom Cogeneration Partners, L.P. (a) 10.8.2 First Amendment to Limited Partnership Agreement of Sumas Cogeneration Company, L.P., dated as of January 30, 1992, between Whatcom Cogeneration Partners, L.P. and Sumas Energy, Inc. (a) 10.8.3 Second Amendment to Limited Partnership Agreement of Sumas Cogeneration Company, L.P., dated as of May 24, 1993, between Whatcom Cogeneration Partners, L.P. and Sumas Energy, Inc. (a) 10.8.4 Second Amended and Restated Shareholders' Agreement, dated as of October 22, 1993, among GATX Capital Corporation, Calpine Agnews, Inc., JGS-Agnews, Inc., and GATX/Calpine-Agnews, Inc. (a) 10.8.5 Amended and Restated Reimbursement Agreement, dated October 22, 1993, between GATX Capital Corporation, Calpine Agnews, Inc., JGS-Agnews, Inc., GATX/Calpine-Agnews, Inc., and O.L.S. Energy-Agnews, Inc. (a) 10.8.6 Amended and Restated Limited Partnership Agreement of Geothermal Energy Partners Ltd., L.P., dated as of May 19, 1989, between Western Geothermal Company, L.P., Sonoma Geothermal Company, L.P., and Cloverdale Geothermal Partners, L.P. (a) 10.8.7 Assignment and Security Agreement, dated as of January 10, 1990, between O.L.S. Energy-Agnews and Credit Suisse. (a) 10.8.8 Pledge Agreement, dated as of January 10, 1990, between GATX/Calpine-Agnews, Inc., and Credit Suisse. (a) 10.8.9 Equity Support Agreement, dated as of January 10, 1990, between Calpine Corporation and Credit Suisse. (a) 10.8.10 Assignment and Security Agreement, dated as of December 1, 1990, between O.L.S. Energy-Agnews and Meridian Trust Company of California. (a) 10.8.11 First Amended and Restated Limited Partner Pledge and Security Agreement, dated as of April 1, 1993, between Sonoma Geothermal Partners, L.P., Healdsburg Energy Company, L.P., Calpine Geysers Company, L.P. (formerly Santa Rosa Geothermal Company, L.P.), Freeport-McMoRan Resource Partners, L.P., and Meridian Trust Company of California. (a) 10.9.1 Calpine Corporation Stock Option Program and forms of agreements thereunder. (a) 10.9.2 Calpine Corporation 1996 Stock Incentive Plan and forms of agreements thereunder. (l) 10.9.3 Calpine Corporation Employee Stock Purchase Plan and forms of agreements thereunder. (l) - 26 - 10.10.1 Amended and Restated Employment Agreement between Calpine Corporation and Mr. Peter Cartwright. (l) 10.10.2 Senior Vice President Employment Agreement between Calpine Corporation and Ms. Ann B. Curtis. (l) 10.10.3 Senior Vice President Employment Agreement between Calpine Corporation and Mr. Lynn A. Kerby. (l) 10.10.4 Vice President Employment Agreement between Calpine Corporation and Mr. Ron A. Walter. (l) 10.10.5 Vice President Employment Agreement between Calpine Corporation and Mr. Robert D. Kelly. (l) 10.10.6 Amended Consulting Contract between Calpine Corporation and Mr. George J. Stathakis. (o) 10.11 Form of Indemnification Agreement for directors and officers. (l) ------------------------------------ * Filed herewith. (a) Incorporated by reference to Registrant's Registration Statement on Form S-1 (Registration Statement No. 33-73160). (b) Incorporated by reference to Registrant's Current Report on Form 8-K dated September 9, 1994 and filed on September 26, 1994. (c) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q dated September 30, 1994 and filed on November 14, 1994. (d) Incorporated by reference to Registrant's Annual Report on Form 10-K dated December 31, 1994 and filed on March 29, 1995. (e) Incorporated by reference to Registrant's Current Report on Form 8-K dated April 21, 1995 and filed on May 5, 1995. (f) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q dated June 30, 1995 and filed on May 12, 1995. (g) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q dated June 30, 1995 and filed on August 14, 1995. (h) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q dated September 30, 1995 and filed on November 14, 1995. (i) Incorporated by reference to Registrant's Annual Report on Form 10-K dated December 31, 1995 and filed on March 29, 1996. (j) Incorporated by reference to Registrant's Current Report on Form 8-K dated May 1, 1996 and filed on May 14, 1996. (k) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q dated June 30, 1996 and filed on May 15, 1996. (l) Incorporated by reference to Registrant's Registration Statement on Form S-1 (Registration Statement No. 333-07497). - 27 - (m) Incorporated by reference to Registrant's Current Report on Form 8-K dated August 29, 1996 and filed on September 13, 1996. (n) Incorporated by reference to Registrant's Annual Report on Form 10-K dated December 31, 1996 and filed on June 30, 1997. (o) Incorporated by reference to Registrants Quarterly Report on Form 10-Q dated March 31, 1997 and filed on May 12, 1997. (b) Reports on Form 8-K Current report dated June 5, 1997 and filed on June 17, 1997 Item 5. Other Events -- Preferred Share Purchase Rights Current report dated June 24, 1997 and filed on July 1, 1997 Item 5. Other Events -- Proposed Rule 144A offering of $200.0 million principal amount of Senior Notes Due 2007 Current report dated July 2, 1997 and filed on July 7, 1997 Ite 5. Other Events -- Pricing of Rule 144A offering of $200.0 million principal amount of 8-3/4% Senior Notes Due 2007 - 28 - SIGNATURES Pursuant to the requirements of the Securities and 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/ Ann B. Curtis Date: August 13, 1997 ------------------------------- Ann B. Curtis Senior Vice President (Chief Financial Officer) By: /s/ Gloria S. Gee Date: August 13, 1997 ------------------------------ Gloria S. Gee Corporate Controller (Chief Accounting Officer) - 29 - EXHIBIT INDEX Exhibit Number Description 11 Computation of Earnings Per Share 27 Financial Data Schedule 4.3 Indenture dated as of July 8, 1997, between Calpine Corporation and The Bank of New York, as Trustee, including form of Notes. 4.4 Registration Rights Agreement dated as of July 1, 1997 by and between Calpine Corporation and Credit Suisse First Boston Corporation, Morgan Stanley & Co. Incorporated, Salomon Brothers Inc., Scotia Capital Markets (USA) Inc., BancAmerica Securities, Inc. and CIBC Wood Gundy Securities Corp. 10.1.18 Credit Agreement, dated as of June 23, 1997, among Calpine Finance Company and Certain Commercial Lending Institutions, and The Bank of Nova Scotia as the Agent for the Lenders. 10.1.19 Purchase agreement dated as of July 1, 1997, among Calpine Corporation and The Bank of New York as the Trustee. 10.2.6 Purchase and Sale Agreement dated March 27, 1997 between Enron Power Corp. and Calpine Finance Company. - 30 - EX-11 2 COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11 CALPINE CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE (in thousands, except per share amounts) (unaudited)
Three Months Ended Six Months Ended June 30, June 30, ------------------------- ------------------------ 1997 1996 1997 1996 --------- --------- --------- --------- Net income (loss) $ 9,400 $ 4,717 $ 5,360 $ 4,423 ========= ========= ========= ========= Primary earnings per share Weighted average number of common shares outstanding 19,911 10,388 19,882 10,388 Conversion of preferred stock -- 2,179 -- 1,221 Common shares issuable upon exercise of stock options using the treasury method 1,087 795 543 398 --------- --------- --------- --------- 20,998 13,362 20,425 12,007 ========= ========= ========= ========= Primary earnings per share $ 0.45 $ 0.35 $ 0.26 $ 0.37 ========= ========= ========= ========= Fully diluted earnings per share Weighted average number of common shares outstanding 19,911 10,388 19,882 10,388 Conversion of preferred stock -- 2,179 -- 1,221 Common shares issuable upon exercise of stock options using the treasury method 1,106 795 1,106 795 --------- --------- --------- --------- 21,017 13,362 20,988 12,404 ========= ========= ========= ========= Fully diluted earnings per share $ 0.45 $ 0.35 $ 0.26 $ 0.36 ========= ========= ========= =========
EX-27 3 FDS 6/30/97
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CALPINE CORPORATION'S CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1997 AND FROM THE CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000916457 Calpine Corporation 1,000 U.S. Dollars 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 1 23,436 6,056 51,341 0 2,859 115,666 814,826 123,382 1,181,068 192,846 563,780 0 0 20 209,488 1,181,068 96,326 106,975 64,276 67,795 0 0 26,145 8,397 3,037 5,360 0 0 0 5,360 0.26 0.26
EX-4.3 4 INDENTURE DATED 7/8/97 INDENTURE dated as of July 8, 1997, between Calpine Corporation, a Delaware corporation (the "Company"), and The Bank of New York, a New York banking corporation (the "Trustee"). Each party agrees as follows for the benefit of the other parties and for the equal and ratable benefit of the holders of the Company's 8 3/4% Senior Notes Due 2007: ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1 Definitions. "Acquired Indebtedness" means Indebtedness of a Person existing at the time at which such Person became a Subsidiary and not incurred in connection with, or in contemplation of, such Person becoming a Subsidiary. Acquired Indebtedness shall be deemed to be Incurred on the date the acquired Person becomes a Subsidiary. "Additional Assets" means (i) any property or assets related to the Line of Business which will be owned and used by the Company or a Restricted Subsid iary; (ii) the Capital Stock of a Person that becomes a Restricted Subsidiary as a result of the acquisition of such Capital Stock by the Company or another Restricted Subsidiary or (iii) Capital Stock constituting a minority interest in any Person that at such time is a Restricted Subsidiary. "Affiliate" of any specified Person means any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securi ties, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. For purposes of Sections 3.11 and 3.12 only, "Affiliate" shall also mean any beneficial owner of 5% or more of the total Voting Shares (on a Fully Diluted Basis) of the Company or of rights or warrants to purchase such stock (whether or not currently exercisable) and any Person who would be an 1 Affiliate of any such beneficial owner pursuant to the first sentence hereof. For purposes of Section 3.3, "Affiliate" shall also mean any Person of which the Company owns 5% or more of any class of Capital Stock or rights to acquire 5% or more or 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, Paying Agent, authenticating agent, co-registrar or additional paying agent. "Asset Sale" means any sale, transfer or other disposition (includ ing by way of merger, consolidation or sale leaseback transactions, but excluding (except as provided for in the provisions described in the last paragraph of Section 3.12(b)) those permitted by Article IV hereof and those permitted by Section 3.6 hereof) in one or a series of transactions by the Company or any Re stricted Subsidiary to any Person other than the Company or any Wholly Owned Subsidiary, of (i) all or any of the Capital Stock of the Company or any Restrict ed Subsidiary, (ii) all or substantially all of the assets of any operating unit, Facility, division or line of business of the Company or any Restricted Subsidiary or (iii) any other property or assets or rights to acquire property or assets of the Company or any Restricted Subsidiary outside of the ordinary course of business of the Company or such Restricted Subsidiary. "Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at the time of determination, the present value (discounted at the interest rate borne by the Securities, compounded annually) of the total obliga tions of the lessee for rental payments during the remaining term of the lease included in such Sale/Leaseback Transaction (including any period for which such lease has been extended). "Average Life" means, as of the date of determination, with respect to any Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum of the products of (A) the numbers of years from the date of determi nation to the dates of each successive scheduled principal payment of such Indebtedness or scheduled redemption or similar payment with respect to such In debtedness or Preferred Stock multiplied by (B) the amount of such payment by (ii) the sum of all such payments. "Bank Credit Agreement" means the Credit Agreement, dated September 25, 1996, among the Company, certain commercial lending institutions named therein and The Bank of Nova Scotia, as agent for the lenders, as amend ed, refinanced, renewed or extended from time to time. "Board of Directors" means the Board of Directors of the Compa ny or any authorized committee thereof. "Business Day" means each day which is not a Legal Holiday. "Capital Stock" means any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation or any and all equivalent ownership interests in a Person (other than a corporation). "Capitalized Lease" means, as applied to any Person, any lease of any property (whether real, personal or mixed) of which the discounted present value of the rental obligations of such Person as lessee, in conformity with GAAP, is required to be capitalized on the balance sheet of such Person; 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 terminated by the lessee without payment of a penalty; and "Capitalized Lease Obligations" means the rental obligations, as aforesaid, under such lease. "Change of Control" means the occurrence of any of the following events: (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than Parent or an underwriter engaged in a firm commit ment underwriting on behalf of the Company, is or becomes the beneficial owner (as such term is used in Rules 13d-3 and 13d-5 under the Exchange Act, except that for purposes of this clause (i) a person shall be deemed to have beneficial ownership of all shares that such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 40% of the total Voting Shares of the Company; (ii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors (together with any new directors whose election by the Board of Directors or whose nomination for election by the stockholders was approved by a vote of 66-2/3% of the directors of the Company then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors then in office; (iii) all or substantially all of the Company's and its Restricted Subsidiaries' assets are sold, leased, exchanged or otherwise transferred to any Person or group of Per 2 sons acting in concert; or (iv) the Company is liquidated or dissolved or adopts a plan of liquidation. "Change of Control Triggering Event" means (A) if a Rating Agency maintains a rating of the Securities at the time a Change of Control occurs, the occurrence of a Change of Control and the occurrence of a Rating Decline or (B) if no Rating Agency maintains a rating of the Securities at the time a Change of Control occurs, the occurrence of a Change of Control. "Code" means the Internal Revenue Code of 1986, as amended. "Company" means the party named as such in the Indenture until a successor replaces it pursuant to the terms and conditions of the Indenture and thereafter means the successor. "Consolidated Coverage Ratio" as of any date of determination means the ratio of (i) the aggregate amount of EBITDA for the period of the most recent four consecutive fiscal quarters to (ii) the Consolidated Interest Expense (excluding interest capitalized in connection with the construction of a new Facility which interest is capitalized during the construction of such Facility) for such four fiscal quarters; provided, however, that if the Company or any Restrict ed Subsidiary has Incurred any Indebtedness since the beginning of such period that remains outstanding or if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness, or both, both EBITDA and Consolidated Interest Expense for such period shall be calculated after giving effect on a pro forma basis to (x) such new Indebtedness as if such Indebtedness had been Incurred on the first day of such period and (y) the repayment, redemption, repurchase, defeasance or discharge of any Indebtedness repaid, redeemed, repurchased, defeased or discharged with the proceeds of such new Indebtedness as if such repayment, redemption, repurchase, defeasance or discharge had been made on the first day of such period; provided, further, that if within the period during which EBITDA or Consolidated Interest Expense is measured, the Company or any of its Restricted Subsidiaries shall have made any Asset Sales, (x) the EBITDA for such period shall be reduced by an amount equal to the EBITDA (if positive) directly attributable to the assets or Capital Stock which are the subject of such Asset Sales for such period, or increased by an amount equal to the EBITDA (if negative), directly attributable thereto for such period and (y) the Consolidated Interest Expense for such period shall be reduced by an amount equal to the Consolidated Interest Expense directly attributable to any Indebtedness for which neither Company nor any Restricted Subsidiary shall continue to be liable as a result of any such Asset Sale or repaid, redeemed, defeased, discharged or otherwise retired in connection with or with the proceeds of the assets or Capital Stock which are the subject of such Asset Sales for such period; and provided, further, that if the Company or any Restrict ed Subsidiary shall have made any acquisition of assets or Capital Stock (occur ring by merger or otherwise) since the beginning of such period (including any acquisition of assets or Capital Stock occurring in connection with a transaction causing a calculation to be made hereunder) the EBITDA and Consolidated Interest Expense for such period shall be calculated, after giving pro forma effect thereto (and without regard to clause (iv) of the proviso to the definition of "Consolidated Net Income"), as if such acquisition of assets or Capital Stock took place on the first day of such period. For all purposes of this definition, if the date of determination occurs prior to the completion of the first four full fiscal quarters following the Issue Date, then "EBITDA" and "Consolidated Interest Ex pense" shall be calculated after giving effect on a pro forma basis to the Offering as if the Offering occurred on the first day of the four full fiscal quarters that were completed preceding such date of determination. "Consolidated Current Liabilities," as of the date of determination, means the aggregate amount of liabilities of the Company and its Consolidated 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 in accordance with GAAP. "Consolidated Income Tax Expense" means, for any period, as applied to the Company, the provision for local, state, federal or foreign income taxes on a Consolidated basis for such period determined in accordance with GAAP. "Consolidated Interest Expense" means, for any period, as applied to the Company, the sum of (a) the total interest expense of the Company and its Consolidated Restricted Subsidiaries for such period as determined in accordance with GAAP, including, without limitation, (i) amortization of debt issuance costs or of original issue discount on any Indebtedness and the interest portion of any deferred payment obligation, calculated in accordance with the effective interest method of accounting, (ii) accrued interest, (iii) noncash interest payments, (iv) commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing, (v) interest actually paid by the Compa 3 ny or any such Subsidiary under any guarantee of Indebtedness or other obliga tion of any other Person and (vi) net costs associated with Interest Rate Agree ments (including amortization of discounts) and Currency Agreements, plus (b) all but the principal component of rentals in respect of Capitalized Lease Obliga tions paid, accrued, or scheduled to be paid or accrued by the Company or its Consolidated Restricted Subsidiaries, plus (c) one-third of all Operating Lease Obligations paid, accrued and/or scheduled to be paid by the Company and its Consolidated Restricted Subsidiaries, plus (d) capitalized interest, plus (e) dividends paid in respect of Preferred Stock of the Company or any Restricted Subsidiary held by Persons other than the Company or a Wholly Owned Subsid iary, plus (f) cash contributions to any employee stock ownership plan to the extent such contributions are used by such employee stock ownership plan to pay interest or fees to any person (other than the Company or a Restricted Subsidiary) in connection with loans incurred by such employee stock ownership plan to pur chase Capital Stock of the Company. "Consolidated Net Income (Loss)" means, for any period, as applied to the Company, the Consolidated net income (loss) of the Company and its Consolidated Restricted Subsidiaries for such period, determined in accordance with GAAP, adjusted by excluding (without duplication), to the extent included in such net income (loss), the following: (i) all extraordinary gains or losses; (ii) any net income of any Person if such Person is not a Domestic Subsidiary, except that (A) the Company's equity in the net income of any such Person for such period shall be included in Consolidated Net Income (Loss) up to the aggregate amount of cash actually distributed by such Person during such period to the Company or a Restricted Subsidiary as a dividend or other distribution and (B) the equity of the Company or a Restricted Subsidiary in a net loss of any such Person for such period shall be included in determining Consolidated Net Income (Loss); (iii) the net income of any Restricted Subsidiary to the extent that the declaration or payment of dividends or similar distributions by such Restricted Subsidiary of such income is not at the time thereof permitted, directly or indi rectly, by operation of the terms of its charter or by-laws or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to such Restricted Subsidiary or its stockholders; (iv) any net income (or loss) of any Person combined with the Company or any of its Restricted Subsidiaries on a "pooling of interests" basis attributable to any period prior to the date of such combination; (v) any gain (but not loss) realized upon the sale or other disposition of any property, plant or equipment of the Company or its Restricted Subsidiaries (including pursuant to any sale-and-leaseback arrangement) which is not sold or otherwise disposed of in the ordinary course of business and any gain (but not loss) realized upon the sale or other disposition by the Company or any Restricted Subsidiary of any Capital Stock of any Person, provided that losses shall be included on an after-tax basis; and (vi) the cumulative effect of a change in accounting principles; and further adjusted by subtracting from such net income the tax liability of any parent of the Company to the extent of payments made to such parent by the Company pursuant to any tax sharing agreement or other arrangement for such period. "Consolidated Net Tangible Assets" means, as of any date of determination, as applied to the Company, the total amount of assets (less accumulated depreciation or amortization, allowances for doubtful receivables, other applicable reserves and other properly deductible items) which would appear on a Consolidated balance sheet of the Company and its Consolidated Re stricted Subsidiaries, determined on a Consolidated basis in accordance with GAAP, and after giving effect to purchase accounting and after deducting therefrom, to the extent otherwise included, the amounts of: (i) Consolidated Current Liabilities; (ii) minority interests in Consolidated Subsidiaries held by Persons other than the Company or a Restricted Subsidiary; (iii) excess of cost over fair value of assets of businesses acquired, as determined in good faith by the Board of Directors; (iv) 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; (v) 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; (vi) treasury stock; and (vii) any cash set apart and held in a sinking or other analogous fund established for the purpose of redemp tion or other retirement of Capital Stock to the extent such obligation is not reflected in Consolidated Current Liabilities. "Consolidated Net Worth" means, at any date of determination, as applied to the Company, stockholders' equity as set forth on the most recently available Consolidated balance sheet of the Company and its Consolidated Re stricted Subsidiaries (which shall be as of a date no more than 60 days prior to the date of such computation), less any amounts attributable to Redeemable Stock or Exchangeable Stock, the cost of treasury stock and the principal amount of any promissory notes receivable from the sale of Capital Stock of the Company or any Subsidiary. "Consolidation" means, with respect to any Person, the consolida tion of accounts of such Person and each of its subsidiaries if and to the extent the accounts of such Person and such subsidiaries are consolidated in accordance with GAAP. The term "Consolidated" shall have a correlative meaning. "Controlled Non-Subsidiary Investment" means any Investment of the type specified in clause (iv) of Section 3.3(a) which is made by the Company or its Restricted Subsidiaries in an Affiliate other than a Subsidiary; provided that (i) at the time such Investment is made, no Default or Event of Default shall have occurred and be continuing (or would result therefrom); (ii) after giving effect to the Investment and to the Incurrence of any Indebtedness in connection therewith on a pro forma basis, the Consolidated Coverage Ratio is at least 1.75:1; (iii) after giving effect to the Investment, the aggregate Investment made by the Company and its Subsidiaries in Controlled Non-Subsidiary Investments does not exceed $100,000,000; (iv) the Person in which the Investment is made is engaged only in the business described in Section 3.18 including Unrelated Businesses to the extent permitted by Section 3.18; (v) the Company, directly or through its Restricted Subsidiaries is entitled to (A) in the case of an Investment in Capital Stock, receive dividends or other distributions on its Investment at the same time as or prior to, and on a basis pro rata with, any other holder or holders of Capital Stock of such Person and (B) in the case of an Investment other than in Capital Stock, receive interest thereon at a rate per annum not less than the rate on the Securities, and, on the liquidation or dissolution of such Person, receive repay ment of the principal thereof prior to the payment of any dividends or distribu tions on Capital Stock of such Person; (vi) the Company directly or through its Restricted Subsidiaries, either (x) controls, under an operating and management agreement or otherwise, the day to day management and operation of such Person and any Facility of the Person in which the Investment is made or (y) has signif icant influence over the management and operation of such Person and any Facility of such Person in all material respects (significant influence to include the right to control or veto any material act or decision) in connection with such management or operation; and (vii) any encumbrances or restrictions on the ability of the Person in which the Investment is made to make the payments, distributions, losses, advances or transfers referred to in clauses (i) through (iii) under Section 3.5, in the written opinion of the President or Chief Financial Officer of the Company (x) is required in order to obtain necessary financing, (y) is customary for such financings and (z) applies only to the assets of or revenues of the Person in whom the Investment is made. "Currency Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect the Company or any Restricted Subsidiary against fluctuations in currency values to or under which the Company or any Restricted Subsidiary is a party or a beneficiary on the Issue Date or becomes a party or beneficiary thereafter. "Default" means any event which is, or after notice or passage of time or both would be, an Event of Default. "defaulted interest" means any interest on any Security which is payable, but is not punctually paid or duly provided for on any Interest Payment Date. "Depositary" means The Depositary Trust Company, its nominees, and their respective successors until a successor Depositary shall have become such pursuant to the applicable provisions of this Indenture and thereafter "De positary" shall mean or include each Person who is then a Depositary hereunder. "Domestic Subsidiary" means a Restricted Subsidiary that is not a Foreign Subsidiary. "EBITDA" means, for any period, as applied to the Company, the sum of Consolidated Net Income (Loss) (but without giving effect to adjustments, accruals, deductions or entries resulting from purchase accounting, extraordinary losses or gains and any gains or losses from any Asset Sales), plus the following to the extent included in calculating Consolidated Net Income (Loss): (a) Consoli dated Income Tax Expense, (b) Consolidated Interest Expense, (c) depreciation expense, (d) amortization expense and (e) all other non-cash items reducing Consolidated Net Income, less all non-cash items increasing Consolidated Net Income, in each case for such period; provided that, if the Company has any Sub sidiary that is not a Wholly Owned Subsidiary, EBITDA shall be reduced (to the extent not otherwise reduced by GAAP) by an amount equal to (A) the consoli dated net income (loss) of such Subsidiary (to the extent included in Consolidated Net Income (Loss)) multiplied by (B) the quotient of (1) the number of shares of outstanding common stock of such Subsidiary not owned on the last day of such period by the Company or any Wholly Owned Subsidiary of the Company divided by (2) the total number of shares of outstanding common stock of such Subsidiary on the last day of such period. "Exchangeable Stock" means any Capital Stock which by its terms is exchangeable or convertible at the option of any Person other than the Compa ny into another security (other than Capital Stock of the Company which is neither Exchangeable Stock nor Redeemable Stock). "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Securities" means the 8 3/4% Senior Notes Due 2007 to be issued by the Company, and containing terms identical to those of the Initial Securities (except that such Exchange Securities (i) shall have been issued in an exchange offer registered under the Securities Act and (ii) shall have an interest rate of 8 3/4% per annum (9 1/4% per annum if such exchange offer is not consum mated before January 5, 1997), without provision for adjustment as provided in paragraph 1 on the reverse of the Initial Securities), that are issued and ex changed for the Initial Securities pursuant to the Registration Rights Agreement and this Indenture or any indenture or indentures supplemental hereto. "Facility" means a power generation facility or energy producing facility, including any related fuel reserves. "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 de scribed in Section 936 of the Code 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. "Foreign Subsidiary" means a Restricted Subsidiary that is incorpo rated in a jurisdiction other than the United States of America or a State thereof or the District of Columbia. "Fully Diluted Basis" means after giving effect to the exercise of any outstanding options, warrants or rights to purchase Voting Shares and the conversion or exchange of any securities convertible into or exchangeable for Voting Shares. "GAAP" means generally accepted accounting principles in the United States of America as in effect and, to the extent optional, adopted by the Company on the Issue Date, consistently applied, including, without limitation, those set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board. "guarantee" means, as applied to any obligation, contingent or otherwise, of any Person, (i) a guarantee, direct or indirect, in any manner, of any part or all of such obligation (other than by endorsement of negotiable instruments for collection in the ordinary course of business) and (ii) an agree ment, direct or indirect, contingent or otherwise, the practical effect of which is to insure in any way the payment or performance (or payment of damages in the event of nonperformance) of any part or all of such obligation, including the payment of amounts drawn down under letters of credit. "Holder" or "Securityholder" means the Person in whose name a Security is registered on the Registrar's books. "Incur" means, as applied to any obligation, to create, incur, issue, assume, guarantee or in any other manner become liable with respect to, contin gently or otherwise, such obligation, and "Incurred," "Incurrence" and "Incur ring" shall each have a correlative meaning; provided, however, that any Indebt edness or Capital Stock of a Person existing at the time such Person becomes (after the Issue Date) a Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred by such Subsidiary at the time it becomes a Subsidiary; and provided, further, 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 (i) 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 scheduled 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 Securities, modify or affect, in any manner adverse to the Holders, such subordination, (D) if the Company is the obligor thereon, provide that a Restricted Subsidiary shall be an obligor, (E) if such Indebtedness is Non- Recourse Debt, cause such Indebtedness to no longer constitute Non-Recourse Debt or (F) violate, or cause the Indebtedness to violate, the provisions of Sections 3.5 or 3.7 and (ii) such Indebtedness would, after giving effect to such amendment, modification or waiver as if it were an Incurrence, comply with clause (i) of the first proviso to the definition of "Refinancing Indebtedness." "Indebtedness" of any Person means, without duplication, (i) the principal of and premium (if any such premium is then due and owing) in respect of (A) indebtedness of such Person for money borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable; (ii) all Capitalized Lease Obligations of such Person; (iii) all obligations of such Person Incurred as the deferred purchase price of property, all conditional sale obligations of such Person and all obligations of such Person under any title retention agreement; (iv) 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 (i) through (iii) above) entered into in the ordinary course of busi ness 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); (v) Redeemable Stock of such Person and, in the case of any Subsidiary, any other Preferred Stock, in either case val ued at, in the case of Redeemable Stock, the greater of its voluntary or involun tary maximum fixed repurchase price exclusive of accrued and unpaid dividends or, in the case of Preferred Stock that is not Redeemable Stock, its liquidation preference exclusive of accrued and unpaid dividends; (vi) contractual obligations to repurchase goods sold or distributed; (vii) all obligations of such Person in re spect of Interest Rate Agreements and Currency Agreements; (viii) all obligations of the type referred to in clauses (i) through (vii) of other Persons and all divi dends of other Persons for the payment of which, in either case, such Person is responsible or liable, directly or indirectly, as obligor, guarantor or otherwise, including by means of any guarantee; and (ix) all obligations of the type referred to in clauses (i) through (viii) of other Persons secured by any Lien on any prop erty or asset of such Person (whether or not such obligation is assumed by such Person), 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; provided, however, that Indebtedness shall not include trade accounts payable arising in the ordinary course of business. For purposes hereof, the "maximum fixed repur chase price" of any Redeemable Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Redeemable Stock as if such Redeemable Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to this Indenture, and if such price is based upon, or measured by, the fair market value of such Redeemable Stock, such fair market value to be determined in good faith by the Board of Directors. 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 obliga tions as described above and, with respect to any contingent obligations (other than pursuant to clause (vi) above, which shall be included to the extent reflected on the balance sheet of such Person in accordance with GAAP) at such date, the maximum liability 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 obliga tion. "Indenture" means this Indenture as amended or supplemented from time to time in accordance with the applicable provisions hereunder. "Initial Securities" means the 8 3/4% Senior Notes Due 2007 issued by the Company under this Indenture or pursuant to any indenture or indentures supplemental hereto. "Institutional Accredited Investor" means an institution that is an "accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act. "Interest Payment Date" means the stated maturity of an install ment of interest on the Securities. "Interest Rate Agreement" means any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement or other similar agreement or arrangement designed to protect against fluctuations in interest rates to or under which the Company or any of its Restricted Subsidiaries is a party or beneficiary on the Issue Date or becomes a party or beneficiary thereunder. "Investment" means, with respect to any Person, any direct or indirect advance, loan or other extension of credit or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any other investment in any other Person, or any purchase or acquisition by such Person of any Capital Stock, bonds, notes, debentures or other securities or assets issued or owned by any other Person (whether by merger, consolidation, amalgamation, sale of assets or otherwise). For purposes of the definition of "Unrestricted Subsidiary" and the provisions set forth in Section 3.3, (i) "Investment" shall include the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of any Restricted Subsidiary at the time that such Restricted Subsidiary is designated an Unrestricted Subsidiary and shall exclude the fair market value of the net assets of any Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is designated a Restricted Subsidiary and (ii) any property transferred to or from an Unrestricted Subsidiary shall be valued at its fair market value at the time of such transfer, in each case as determined by the Board of Directors in good faith. For purposes of determining the aggregate amount of Investments in Controlled Non-Subsidiary Investments, the amount of such Investments shall be reduced by an amount equal to the net payments of interest on Indebtedness, dividends, repayments of interest on Indebtedness, divi dends, repayments of loans or advances, or other transfers of assets, in each case to the Company or any Restricted Subsidiary from any Person in whom a Con trolled Non-Subsidiary Investment has been made, not to exceed in the case of any Controlled Non-Subsidiary Investment the amount of Investments previously made by the Company or any Restricted Subsidiary in such Person. "Investment Grade" means, with respect to the Securities, a rating of Baa3 or higher by Moody's together with a rating of BBB- or higher by S&P, provided that neither of such entities shall have announced or informed the Company that it is reviewing the rating of the Securities in light of downgrading the rating thereof. "Issue Date" means the date on which the Initial Securities are originally issued under this Indenture. "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). "Line of Business" means the ownership, acquisition, development, construction, improvement and operation of Facilities. "Moody's" means Moody's Investors Service, Inc. and its succes sors. "Net Available Cash" means, with respect to any Asset Sale, the cash or cash equivalent payments received by the Company or a Subsidiary in connection with such Asset Sale (including any cash received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise, but only as or when received and also including the proceeds of other property received when converted to cash or cash equivalents) net of the sum of, without duplication, (i) all reasonable legal, title and recording tax expenses, reasonable commissions, and other reasonable fees and expenses incurred directly relating to such Asset Sale, (ii) all local, state, federal and foreign taxes required to be paid or accrued as a liability by the Company or any of its Restricted Subsidiaries as a consequence of such Asset Sale, (iii) payments made to repay Indebtedness which is secured by any assets subject to such Asset Sale in accordance with the terms of any Lien upon or other security agreement of any kind with respect to such assets, or which must by its terms, or by applicable law, be repaid out of the proceeds from such Asset Sale and (iv) all distributions required by any contract entered into other than in contemplation of such Asset Sale to be paid to any holder of a minority equity interest in such Restricted Subsidiary as a result of such Asset Sale, so long as such distributions do not exceed such minority holder's pro rata portion (based on such minority holder's proportionate equity interest) of the cash or cash equivalent payments described above, net of the amounts set forth in clauses (i)-(iii) above. "Net Cash Proceeds" means, with respect to any issuance or sale of Capital Stock by any Person, the cash proceeds to such Person of such issuance or sale net of attorneys' fees, accountants' fees, underwriters' or placement agents' fees, discounts or commissions and brokerage, consultancy and other fees actually incurred by such Person in connection with such issuance or sale and net of taxes paid or payable by such Person as a result thereof. "Non-Convertible Capital Stock" means, with respect to any corporation, any Capital Stock of such corporation which is not convertible into another security other than non-convertible common stock of such corporation; provided, however, that Non-Convertible Capital Stock shall not include any Redeemable Stock or Exchangeable Stock. "Non-U.S. Person" means a person who is not a U.S. Person as that term is defined in Regulation S. "Non-Recourse Debt" means Indebtedness of the Company or any Restricted Subsidiary that is Incurred to acquire, construct or develop a Facility provided that such Indebtedness is without recourse to the Company or any Re stricted Subsidiary or to any assets of the Company or any such Restricted Subsidiary other than such Facility and the income from and proceeds of such Facility. "Offering" means the offering and sale of the Initial Securities pursuant to the Purchase Agreement dated July 1, 1997 among the Company, Credit Suisse First Boston Corporation, Morgan Stanley & Co. Incorporated, Salomon Brothers Inc, Scotia Capital Markets (USA) Inc., CIBC Wood Gundy Securities Corp. and BancAmerica Securities, Inc. "Officer" means the Chairman, the President, any Vice President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, the Secretary, any Assistant Treasurer, any Assistant Secretary or the Controller of the Company. "Officers' Certificate" means a certificate signed by two Officers, one of whom must be the President, the Treasurer or a Vice President of the Company. Each Officers' Certificate (other than certificates provided pursuant to TIA Section 314(a)(4)) shall include the statements provided for in TIA Section 314(e). "Operating Lease Obligations" means any obligation of the Compa ny and its Restricted Subsidiaries on a Consolidated basis incurred or assumed under or in connection with any lease of real or personal property which, in accordance with GAAP, is not required to be classified and accounted for as a capital lease. "Opinion of Counsel" means a written opinion from legal counsel who is acceptable to the Trustee. The counsel, if so acceptable, may be an employee of or counsel to the Company or the Trustee. Each such Opinion of Counsel shall include the statements provided for in TIA Section 314(e). "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Preferred Stock", as applied to the Capital Stock of any corpora tion, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such corporation, over shares of Capital Stock of any other class of such corporation. "Principal" of a Security means the principal of the Security plus, if applicable, the premium on the Security. "Private Placement Legend" means the legend set forth on the Initial Securities in the form set forth in Section 2.1(c). "Public Equity Offering" means an underwritten primary public offering of equity securities of the Company pursuant to an effective registration statement under the Securities Act. "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 that term is defined in Rule 144A. "Rating Agencies" is defined to mean S&P and Moody's. "Rating Category" is defined to mean (i) with respect to S&P, any of the following categories: AAA, AA, A, BBB, BB, B, CCC, CC, C and D (or equivalent successor categories) and (ii) with respect to Moody's, any of the following categories: Aaa, Aa, A, Baa, Ba, B, Caa, Ca, C and D (or equivalent successor categories). In determining whether the rating of the Securities has decreased by one or more gradations, gradations within Rating Categories (+ and - - for S&P; 1, 2 and 3 for Moody's) shall be taken into account (e.g., with respect to S&P, a decline in a rating from BB+ to BB, as well as from BB- to B+, will constitute a decrease of one gradation). "Rating Decline" is defined to mean the occurrence of (i) or (ii) below on, or within 90 days after, the earliest of (A) the Company having become aware that a Change of Control has occurred, (B) the date of public notice of the occurrence of a Change of Control or (C) the date of public notice of the intention by Parent or the Company to approve, recommend or enter into, any transaction which, if consummated, would result in a Change of Control (which period shall be extended so long as the rating of the Securities is under publicly announced consideration or possible downgrade by either of the Rating Agencies), (i) a decrease of the rating of the Securities by either Rating Agency by one or more rating gradations or (ii) the Company shall fail to promptly advise the Rating Agencies, in writing, of such occurrence or any subsequent material developments or shall fail to use its best efforts to obtain, from at least one Rating Agency, a written, publicly announced affirmation of its rating of the Securities, stating that it is not downgrading, and is not considering downgrading, the Securities. "Redeemable Stock" means any class or series of Capital Stock of any Person that (a) by its terms, by the terms of any security into which it is convertible or exchangeable or otherwise is, or upon the happening of an event or passage of time would be, required to be redeemed (in whole or in part) on or prior to the first anniversary of the Stated Maturity of the Securities, (b) is re deemable at the option of the holder thereof at any time on or prior to the first anniversary of the Stated Maturity of the Securities (other than on a Change of Control or Asset Sale, provided that such Change of Control or Asset Sale shall not yet have occurred) or (c) is convertible into or exchangeable for Capital Stock referred to in clause (a) or clause (b) above or debt securities at any time prior to the first anniversary of the Stated Maturity of the Securities. "Refinancing Indebtedness" means Indebtedness that refunds, refinances, replaces, renews, repays or extends (including pursuant to any defeasance or discharge mechanism) (collectively, "refinances," and "refinanced" shall have a correlative meaning) any Indebtedness of the Company or a Restrict ed Subsidiary existing on the Issue Date or Incurred in compliance with the Indenture (including Indebtedness of the Company that refinances Indebtedness of any Restricted Subsidiary and Indebtedness of any Restricted Subsidiary that refi nances Indebtedness of another Restricted Subsidiary) including Indebtedness that refinances Refinancing Indebtedness; provided, however, that (i) if the Indebted ness being refinanced is contractually subordinated in right of payment to the Securities, the Refinancing Indebtedness shall be contractually subordinated in right of payment to the Securities to at least the same extent as the Indebtedness being refinanced, (ii) if the Indebtedness being refinanced is Non-Recourse Debt, such Refinancing Indebtedness shall be Non-Recourse Debt, (iii) the Refinancing Indebtedness is scheduled to mature either (a) no earlier than the Indebtedness being refinanced or (b) after the Stated Maturity of the Securities, (iv) the Refi nancing Indebtedness has an Average Life at the time such Refinancing Indebted ness is Incurred that is equal to or greater than the Average Life of the Indebt edness being refinanced and (v) such Refinancing Indebtedness is in an aggregate principal amount (or if issued with original issue discount, an aggregate issue price) that is equal to or less than the aggregate principal amount (or if issued with original issue discount, the aggregate accreted value) then outstanding (plus fees and expenses, including any premium, swap breakage and defeasance costs) under the Indebtedness being refinanced; and provided, further, that Refinancing Indebtedness shall not include (x) Indebtedness of a Subsidiary of the Company that refinances Indebtedness of the Company or (y) Indebtedness of the Company or a Restricted Subsidiary that refinances Indebtedness of an Unrestricted Subsid iary. "Registration Rights Agreement" means the Registration Rights Agreement, dated as of July 1, 1997, by and among the Company, Credit Suisse First Boston Corporation, Morgan Stanley & Co. Incorporated, Salomon Brothers Inc, Scotia Capital Markets (USA) Inc., CIBC Wood Gundy Securities Corp. and BancAmerica Securities, Inc. "Registration Statement" means the Registration Statement as defined and described in the Registration Rights Agreement. "Regulation S" means Regulation S under the Securities Act. "Related Assets" means electric power plants that, on the Issue Date, produce electricity solely by utilizing steam from steam fields owned and operated by a Restricted Subsidiary that is a Wholly Owned Subsidiary on the Issue Date. "Related Asset Indebtedness" means Non-Recourse Debt of a Restricted Subsidiary that is a Wholly Owned Subsidiary on the Issue Date, the proceeds of which are used by such Restricted Subsidiary to finance the acqui sition of Related Assets by such Restricted Subsidiary; provided, however, that (i) such Related Asset Indebtedness is Incurred contemporaneously with a Refinanc ing of all of the Non-Recourse Debt of such Restricted Subsidiary then outstand ing and (ii) the principal amount of such Related Asset Indebtedness shall not exceed the purchase price of the Related Assets plus reasonable out-of-pocket transaction costs and expenses of the Company and its Restricted Subsidiaries required to acquire, or finance the acquisition of, such Related Assets. "Restricted Subsidiary" means any Subsidiary of the Company that is not designated an Unrestricted Subsidiary by the Board of Directors. "Rule 144A" means Rule 144A under the Securities Act. "S&P" means Standard and Poor's Corporation and its successors. "Sale/Leaseback Transaction" means an arrangement relating to property now owned or hereafter acquired whereby the Company or a Subsidiary transfers such property to a Person and leases it back from such Person, other than leases for a term of not more than 36 months or between the Company and a Wholly Owned Subsidiary or between Wholly Owned Subsidiaries. "SEC" means the Securities and Exchange Commission. "Securities" means the Initial Securities and the Exchange Securi ties that are issued under and pursuant to the terms of this Indenture and any indenture or indentures supplemental hereto, as amended or supplemented from time to time. For purposes of this Indenture and any indenture or indentures supplemental hereto, all Initial Securities and Exchange Securities shall be treated as a single class and shall vote together as one series of Securities under this Indenture. "Securities Act" means the Securities Act of 1933, as amended from time to time. "Senior Indebtedness" means (i) all obligations consisting of the principal of and premium, if any, and accrued and unpaid interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Company whether or not post-filing interest is allowed in such proceeding), whether existing on the Issue Date or thereafter In curred, in respect of (A) Indebtedness of the Company for money borrowed and (B) Indebtedness evidenced by notes, debentures, bonds or other similar instru ments for the payment of which the Company is responsible or liable; (ii) all Capitalized Lease Obligations of the Company; (iii) all obligations of the Compa ny (A) for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction, (B) under Interest Rate Agreements and Currency Agreements entered into in respect of any obligations described in clauses (i) and (ii) or (C) issued or assumed as the deferred purchase price of property, and all conditional sale obligations of the Company and all obligations of the Company under any title retention agreement; (iv) all guarantees of the Company with respect to obligations of other persons of the type referred to in clauses (ii) and (iii) and with respect to the payment of dividends of other Persons; and (v) all obligations of the Company consisting of modifications, renewals, extensions, replacements and refundings of any obligations described in clauses (i), (ii), (iii) or (iv); unless, in the instrument creating or evidencing the same or pursuant to which the same is outstanding, it is provided that such obligations are subordinated in right of payment to the Securities, or any other Indebtedness or obligation of the Company; provided, however, that Senior Indebtedness shall not be deemed to include (1) any obligation of the Company to any Subsidiary, (2) any liability for Federal, state, local or other taxes or (3) any accounts payable or other liability to trade creditors arising in the ordinary course of business (including guarantees thereof or instruments evidencing such liabili ties). "Significant Subsidiary" means any Subsidiary (other than an Unrestricted Subsidiary) that would be a "Significant Subsidiary" of the Company within the meaning of Rule 1-02 under Regulations S-X promulgated by the SEC. "Stated Maturity" means, with respect to any security, the date specified in such security as the fixed date on which the principal of such security is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase of such security at the option of the holder thereof upon the happening of any contingency). "Subordinated Indebtedness" means any Indebtedness of the Company (whether outstanding on the Issue Date or thereafter Incurred) which is contractually subordinated or junior in right of payment to the Securities or any other Indebtedness of the Company. "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 a majority of the outstanding Voting Shares or an equiva lent 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. Code Section 77aaa-77bbbb) as in effect on the date first above written. "Trustee" means the party named as such above until a successor replaces it and thereafter means the successor. "Trust Officer" means any officer of the Trustee assigned by the Trustee to administer its corporate trust matters or to whom any corporate trust matter is referred because of that officer's knowledge of and familiarity with the particular subject. "Uniform Commercial Code" means the New York Uniform Commercial Code as in effect from time to time. "Unrelated Business" means any business other than the Line of Business. "Unrestricted Subsidiary" means (i) any Subsidiary that at the time of determination shall be designated an Unrestricted Subsidiary by the Board of Directors in the manner provided below and (ii) any subsidiary of an Unrestricted Subsidiary. The 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, the Company or any other Subsidiary that is not a Subsidiary of the Subsidiary to be so designated; provided, that either (A) the Subsidiary to be so designated has total assets of $1,000 or less or (B) if such Subsidiary has assets greater than $1,000, that such designation would be permitted pursuant to Section 3.3. The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary of the Company; provided, however, that imme diately after giving effect to such designation (x) the Company could Incur $1.00 of additional Indebtedness pursuant to Section 3.4(a) and (y) no Default or Event of Default shall have occurred and be continuing. Any such designation by the Board of Directors shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the board resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing provisions; provided, however, that the failure to so file such resolution and/or Officers' Certificate with the Trustee shall not impair or affect the validity of such designation. "U.S. Government Obligations" means securities that are (i) direct obligations of the United States of America for the payment of which its full faith and credit is pledged or (ii) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the payment of which is unconditionally guaranteed as a full faith and credit obliga tion by the United States of America, which, in either case under clauses (i) or (ii) are not callable or redeemable before the maturity thereof. "Voting Shares," with respect to any corporation, means the Capital Stock having the general voting power under ordinary circumstances to elect at least a majority of the board of directors (irrespective of whether or not at the time stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency). "Wholly Owned Subsidiary" means a Subsidiary (other than an Unrestricted Subsidiary) all the Capital Stock of which (other than directors' qualifying shares) is owned by the Company or another Wholly Owned Subsid iary. "Working Capital Credit Agreement" means the Line of Credit Note, dated as of June 4, 1993, between the Company and The Bank of Califor nia, N.A., as amended, refinanced, renewed or extended from time to time. SECTION 1.2 Other Definitions. Term Defined in Section "Application Period".................................................. 3.12 "Asset Sale Offer".................................................... 3.12 "Asset Sale Offer Amount"............................................. 3.12 "Asset Sale Purchase Date"............................................ 3.12 "Bankruptcy Law"...................................................... 5.1 "Change of Control Offer"............................................. 3.8 "Change of Control Purchase Date"..................................... 3.8 "Custodian"........................................................... 5.1 "Event of Default".................................................... 5.1 "Global Note" ........................................................ 2.1(b) "Legal Holiday"....................................................... 10.7 "Notice of Default"................................................... 5.1 "Offer Period"........................................................ 3.12 "Paying Agent"........................................................ 2.3 "Registrar"........................................................... 2.3 "Restricted Payment".................................................. 3.3(a) "Successor Corporation"................................................ 4.1(i) SECTION 1.3 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: "Commission" means the SEC; "indenture securities" means the Securities; "indenture security holder" means a Holder or Securityholder; "indenture to be qualified" means this Indenture; "indenture trustee" or "institutional trustee" means the Trustee; and "obligor" on the indenture securities means the Company. 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 assigned to them. SECTION 1.4 Rules of Construction. Unless the context otherwise requires: (a) a term has the meaning assigned to it; (b) generally accepted accounting principles" means, and any accounting term not otherwise defined has the meaning assigned to it and shall be construed in accordance with, GAAP; (c) "or" is not exclusive; (d) words in the singular include the plural, and in the plural include the singular; (e) provisions apply to successive events and transactions; (f) "including" means including, without limitation; (g) unsecured debt shall not be deemed to be subordinate or junior to secured debt merely by virtue of its nature as unsecured debt; (h) the principal amount of any non-interest bearing or other discount security at any date shall be the principal amount thereof that would be shown on a balance sheet of the issuer dated such date pre pared in accordance with generally accepted accounting principles and accretion of principal on such security shall be deemed to be the Incurrence of Indebtedness; and (i) the principal amount (if any) of any Preferred Stock shall be the greatest of (i) the stated value, (ii) the redemption price or (iii) the liquidation preference of such Preferred Stock. ARTICLE II THE SECURITIES SECTION 2.1 Form and Dating. (a) The Initial Securities and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A annexed hereto, which is part of this Indenture. The Exchange Securities and the Trustee's certificate of authorization shall be substantially in the form of Exhibit B annexed hereto, which is part of this Indenture. The Securities may have notations, legends or endorsements required by law, stock exchange rule or usage. Each Security shall be dated the date of its authentication. The terms and provisions contained in the forms of Securities annexed hereto as Exhibit A and Exhibit B shall constitute, and are expressly made, a part of this Indenture. To the extent applicable, the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. (b) Securities offered and sold in reliance on Rule 144A and securities offered and sold in offshore transactions in reliance on Regulation S shall be issued initially in the form of one or more permanent global Securities in registered form, substantially in the form of Exhibit A hereto, with such applicable legends as are provided in Exhibit A hereto (the "Global Note"), deposited with the Trustee, as custodian for the Depositary, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The aggre gate principal amount of the Global Note may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for the Depositary or its nominee, as hereinafter provided. (c) Unless and until an Initial Security is exchanged for an Exchange Security in connection with an effective Registration Statement pursuant to the Registration Rights Agreement, the Global Note, shall bear the following legend on the face thereof: THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD 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, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTI TUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS NOT A U.S. PERSON AND IS AC QUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT, WITHIN TWO YEARS AF TER THE LATER OF THE ORIGINAL ISSUANCE OF THIS SECURI TY OR THE LAST DATE ON WHICH THIS SECURITY WAS HELD BY AN AFFILIATE OF THE COMPANY, RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COM PLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVID ED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (E) PURSUANT TO AN EFFECTIVE REGISTRATION STATE MENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS SECURITY WITHIN TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUANCE OF THIS SECURITY OR THE LAST DATE ON WHICH THIS SECURITY WAS HELD BY AN AFFILIATE OF THE COMPANY, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH HEREIN RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS SECURITY TO THE TRUSTEE. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNIT 4 ED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS SECURITY IN VIOLATION OF THE FOREGOING RESTRICTIONS. Each Global Note, whether or not an Exchange Note, shall bear the following legend on the face thereof: UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS RE QUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTA TIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HERE OF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS SECURITY SHALL BE LIMITED TO TRANS FERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 2.8 OF THE INDENTURE. SECTION 2.2 Execution and Authentication. Two Officers shall sign the Securities for the Company by manual or facsimile signature. The Company's seal shall be impressed, affixed, imprint ed or reproduced on the Securities and may be in facsimile form. If an Officer whose signature is on a Security no longer holds that office at the time the Security is authenticated, the Security shall nevertheless be valid. A Security shall not be valid until authenticated by the manual signature of an authorized signatory of the Trustee. The signature shall be conclusive evidence that the Security has been authenticated under this Indenture. The Trustee shall authenticate (i) Initial Securities for original issue in an aggregate principal amount of $200,000,000 and (ii) Exchange Securities for issue only in exchange pursuant to the Registration Rights Agreement, for a like principal amount of Initial Securities, in each case, upon a written order of the Company signed by two Officers. Such order shall specify the amount of the Securities to be authenticated and the date on which the original issue of Securi ties is to be authenticated and whether the Securities are to be Initial Securities or Exchange Securities. The aggregate principal amount of Securities outstanding at any time may not exceed $275,000,000 except as provided in Section 2.9. The Trustee shall initially act as authenticating agent and may subsequently appoint another Person acceptable to the Company as authenticating agent to authenticate Securities. Unless limited by the terms of such appoint ment, an authenticating agent may authenticate Securities 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 the Company or an Affiliate of the Company. Provided that the authentication agent has entered into an agreement with the Company concerning the authentication agent's duties, the Trustee shall not be liable for any act or any failure of the authenticating agent to perform any duty either required herein or authorized herein to be performed by such person in accordance with this Indenture. The Securities shall be issued only in registered form without coupons and only in denominations of $1,000 and any integral multiple thereof. SECTION 2.3 Registrar and Paying Agent. The Company shall maintain an office or agency where Securities may be presented for registration of transfer or for exchange ("Registrar") and an office or agency where Securities may be presented for payment ("Paying Agent"). The Registrar shall keep a register of the Securities and of their transfer and exchange. The Company may appoint one or more co-registrars and one or more additional paying agents. The term "Paying Agent" includes any additional paying agent and the term "Registrar" includes any co-registrar. The Company shall enter into an appropriate agency agreement with any Registrar, Paying Agent or co-registrar not a party to this Indenture. The agreement shall implement the provisions of this Indenture that relate to such agent. The Company shall promptly notify the Trustee of the name and address of any such agent and any change in the address of such agent. If the Company fails to maintain a Registrar or Paying Agent, the Trustee shall act as such and shall be entitled to appropriate compensation therefor pursuant to Section 6.7. The Company or any Subsidiary or Affiliate of the Company may act as Paying Agent, Registrar, co-registrar or transfer agent. The Company initially appoints the Trustee as Registrar and Paying Agent in connection with the Securities. SECTION 2.4 Paying Agent To Hold Money in Trust. On or prior to 11:00 a.m., eastern standard time, on each due date of the principal and interest on any Security (including any redemption date fixed under the terms of such Security or this Indenture) the Company shall deposit with the Paying Agent a sum of money, in immediately available funds, sufficient to pay such principal and interest in funds available when such becomes due. 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 Securityholders or the Trustee all money held by the Paying Agent for the pay ment of principal of or interest on the Securities (whether such money has been paid to it by the Company or any other obligor on the Securities) and shall notify the Trustee of any default by the Company (or any other obligor on the Securi ties) in making any such payment. If the Company or a Subsidiary or an affiliate of the Company acts as Paying Agent, it shall segregate the money held by it as Paying Agent and hold it as a separate trust fund for the benefit of the Securityholders. If the Company defaults in its obligation to deposit funds for the payment of principal and interest the Trustee may, during the continuation of such default, 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 and to account for any funds disbursed by it. Upon doing so, the Paying Agent (other than the Company or a Subsidiary or Affiliate of the Company) shall have no further liability for the money delivered to the Trustee. SECTION 2.5 Securityholder Lists. The Trustee shall preserve in as current a form as reasonably practicable the most recent list available to it of the names and addresses of Securityholders. If the Trustee is not the Registrar, the Company shall furnish to the Trustee at least five 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 Securityholders, and the Company shall otherwise comply with TIA Sec 312(a). SECTION 2.6 Transfer and Exchange. (a) The Securities shall be transferable only upon the sur- render of a Security for registration of transfer. When a Security is presented to the Registrar or a co-registrar with a request to register a transfer, the Registrar shall register the transfer as requested if the requirements of Section 8-401(1) of the Uniform Commercial Code are met (and the Registrar shall be entitled to assume such requirements have been met unless it receives written notice to the contrary), the requirements of Section 2.7 or Section 2.8 of this Indenture, if applicable, are met and, if so required by the Trustee or the Company, if the Security presented is accompanied by a written instrument of transfer in form satisfactory to the Trustee and the Company, duly executed by the registered owner or by his or her attorney duly authorized in writing. When Securities are presented to the Registrar or a co-registrar with a request to exchange them for an equal principal amount of Securities of other authorized denominations (including on exchange of Initial Securities for Exchange Securities), the Regis trar shall make the exchange as requested if the same requirements are met; provided that no exchanges of Initial Securities for Exchange Securities shall occur until a Registration Statement shall have been declared effective by the SEC and that any Initial Securities that are exchanged for Exchange Securities shall be cancelled by the Trustee. To permit registration of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Securities at the Registrar's or co-registrar's request. The Depositary shall, by acceptance of a Global Note, agree that transfers of beneficial interests in such Global Note may be effected only through a book-entry system maintained by the Depositary (or its agent), and that ownership of a beneficial interest in the Global Note shall be required to be reflected in a book entry. No service charge shall be made for any registration of transfer or exchange of the Securities, but the Company may require payment of a sum suffi 5 cient to cover any transfer tax or similar governmental charge payable in connec tion therewith (other than any such transfer taxes or similar governmental charge payable upon exchange pursuant to Section 2.12 or 8.5 of this Indenture). The Company shall not be required to make and the Registrar need not register transfers or exchanges of Securities selected for redemption (except, in the case of Securities to be redeemed in part, the portion thereof not to be redeemed) or for a period of 15 days before a selection of Securities to be redeemed or 15 days before an interest payment date. Prior to the due presentation for registration of transfer of any Security, the Company, the Trustee, the Paying Agent, the Registrar or any co-registrar may deem and treat the person in whose name a Security is registered as the absolute owner of such Security for the purpose of receiving payment of principal of and interest on such Security and for all other purposes whatsoever, whether or not such Security is overdue, and none of the Company, the Trustee, the Paying Agent, the Registrar or any co-registrar shall be affected by notice to the contrary. SECTION 2.7 Book-Entry Provisions for Global Note. ------------------------------------- (a) The Global Note initially shall (i) be registered in the name of the Depositary for such Global Notes or the nominee of such Depositary, (ii) be delivered to the Trustee as custodian for such Depositary and (iii) bear legends as set forth in Section 2.1(c). Members of, or participants in, the Depositary ("Agent Members") shall have no rights under this Indenture with respect to any Global Note held on their behalf by the Depositary, or the Trustee as its custodian, or under the Global Note and the Depositary may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of such Global Note, for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee, from giving effect to any written certification, proxy or other authoriza tion furnished by the Depositary or impair, as between the Depositary and its Agent Members, the operation of customary practices governing the exercise of the rights of a holder of any Security. (b) Transfers of the Global Note shall be limited to transfers of such Global Note in whole, but not in part, to the Depositary, its successors or their respective nominees. Beneficial interests in the Global Note may be transferred in accordance with the applicable rules and procedures of the Depositary and the provisions of Section 2.8 hereof. (c) The registered holder of the Global Note may grant proxies and otherwise authorize any person, including Agent Members and persons that may hold interests through Agent Members, to take any action which such holder is entitled to take under this Indenture or the Securities. SECTION 2.8 Special Transfer Provisions. Unless and until an Initial Security is exchanged for an Exchange Note, or the Initial Securities are registered for sale in connection with an effective Registration pursuant to the Registration Rights Agreement, the follow ing provisions shall apply: (a) Transfers to QIBs and to Non-U.S. Persons. The following provisions shall apply with respect to the registration of any proposed transfer of an Initial Security to a QIB and transfers to or by Non-U.S. Persons: (i) The Registrar shall register the transfer if such transfer is being made by a proposed transferor who has checked the box provided for on the form of Initial Security stating, or has otherwise advised the Company and the Registrar in writing sub stantially in the form of Exhibit C hereto, that the sale has been made in compliance with the provisions of Rule 144A to a transfer ee who has signed the certification provided for on the form of Initial Security stating, or has otherwise advised the Company and the Registrar in writing, that it is purchasing the Initial Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a QIB within the meaning of Rule 144A, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as it has request ed pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon its foregoing representations in order to claim the exemption from registration provided by Rule 144A. (ii) The Registrar shall register the transfer of any Initial Security if the proposed transferee is a Non-U.S. Person and the proposed transferor has delivered to the Registrar a certificate substantially in the form of Exhibit D hereto. (b) Private Placement Legend. Upon the transfer, ex change or replacement of Securities not bearing the Private Placement Legend, the Registrar shall deliver Securities that do not bear the Private Placement Legend. Upon the transfer, exchange or replacement of Securities bearing the Private Placement Legend, the Registrar shall deliver only Securities that bear the Private Placement Legend unless there is delivered to the Registrar an opinion of counsel reasonably satisfactory to the Company and the Registrar to the effect that neither such legend nor the related restrictions on transfer are required in order to maintain compliance with the provisions of the Securities Act. (c) General. By its acceptance of any Security bearing the Private Placement Legend, each holder of such Security acknowledges the restrictions on transfer of such Security set forth in this Indenture and in the Private Placement Legend and agrees that it will transfer such Security only as provided in this Indenture. The Registrar shall not register a transfer of any Security unless such transfer complies with the restrictions on transfer of such Security set forth in this Indenture, provided, however, that the Registrar shall register the transfer of any Initial Security, whether or not such Initial Security bears the Private Placement Legend, if the requested transfer is at least two years after the later of the original Issue Date of the Initial Security and the last date on which such Initial Security was held by an affiliate of the Company. In connection with any transfer of Securities, each holder agrees by its acceptance of the Initial Securities to furnish the Registrar or the Company such certifications, legal opinions or other information as either of them may reasonably require to confirm that such transfer is being made pursuant to an exemption from, or a transaction not subject to, the registration requirements of the Securities Act; provided that the Registrar shall not be required to determine (but may rely on a determination made by the Company with respect to) the sufficiency of any such certifications, legal opinions or other information. The Registrar shall retain copies of all letters, notices and other written communications received pursuant to Section 2.7 hereof or this Section 2.8. The Company shall have the right to inspect and make copies of all such letters, notices or other written communications at any reasonable time upon the giving of reasonable written notice to the Registrar. SECTION 2.9 Replacement Securities. If a mutilated Security is surrendered to the Registrar or if the Holder of a Security claims that the Security has been lost, destroyed or wrong fully taken and the Holder furnishes to the Company and the Trustee evidence to their satisfaction of such loss, destruction or wrongful taking, the Company shall issue and the Trustee shall, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, authenti cate a replacement Security if the requirements of Section 8-405 of the Uniform Commercial Code are met (and the Registrar shall be entitled to assume such requirements have been met unless it receives written notice to the contrary) and if there is delivered to the Company and the Trustee such security or indemnity as may be required to save each of them harmless, satisfactory to the Company or the Trustee, as the case may be. The Company and the Trustee may charge the Holder for their expenses in replacing a Security. Every replacement Security is an additional obligation of the Company and shall be entitled to the benefits of this Indenture. SECTION 2.10 Outstanding Securities. The Securities outstanding at any time are all the Securities authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation, and those described in this Section as not outstanding. If a Security is replaced pursuant to Section 2.9, it ceases to be outstanding unless the Trustee and the Company receive proof satisfactory to them that the replaced Security is held by a bona fide purchaser. If all the principal and interest on any Securities are considered paid under Section 3.1, such Securities cease to be outstanding under this Inden ture and interest on such Securities shall cease to accrue. If the Paying Agent (other than the Company or a Subsidiary or an Affiliate of the Company) holds in accordance with this Indenture on a redemp tion date or maturity date money sufficient to pay all principal and interest due on that date then on and after that date such Securities cease to be outstanding and interest on them ceases to accrue (unless there shall be a default in such pay ment). If a Security is called for redemption, the Company and the Trustee need not treat the Security as outstanding in determining whether Holders of the required principal amount of Securities have concurred in any direction, waiver or consent. Subject to Section 2.11, a Security does not cease to be outstanding because the Company or an Affiliate thereof holds the Security. SECTION 2.11 Determination of Holders' Action. In determining whether the Holders of the required principal amount of Securities have concurred in any direction, amendment, waiver or consent, Securities owned by or pledged to the Company, any other obligor upon the Securities or any Affiliate of the Company, or such other obligor shall be disregarded and deemed not to be outstanding, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Securities which the Trustee knows are so owned or pledged shall be so disregarded. SECTION 2.12 Temporary Securities. Until definitive Securities are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Securities. Temporary Securities shall be substantially in the form of definitive Securities but may have variations that the Company considers appropriate for temporary Securities. Without unreasonable delay, the Company shall prepare and the Trustee, upon the written order of the Company signed by two Officers, shall authenticate definitive Securities in exchange for temporary Securities. Such exchange shall be made by the Company at its own expense and without any charge therefor. Until so ex changed, temporary Securities shall be entitled to the same rights, benefits and privileges as definitive Securities. SECTION 2.13 Cancellation. The Company at any time may deliver Securities to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Securities surrendered to them for registration of transfer, exchange or payment. The Trustee shall cancel all Securities surrendered for registration of transfer, exchange, payment or cancellation and shall return such cancelled securities to the Company. The Company may not issue new Securities to replace Securities that it has paid or delivered to the Trustee for cancellation. SECTION 2.14 Defaulted Interest. If the Company defaults in a payment of interest on the Securities, it shall pay defaulted interest, plus any interest payable on the defaulted interest to the extent permitted by law, in any lawful manner. It may pay the defaulted interest to the Persons who are Securityholders on a subsequent special record date which date shall be at least five Business Days prior to the payment date. The Company shall fix the special record date and payment date. At least 15 days before the special record date, the Company (or the Trustee, in the name of and at the expense of the Company) shall mail to Securityholders a notice that states the special record date, payment date and amount of interest to be paid. ARTICLE III COVENANTS SECTION 3.1 Payment of Securities. The Company shall pay the principal of and interest on the Securi ties on the dates and in the manner provided in the Securities. The Company shall pay interest on overdue principal at the rate borne by the Securities; it shall pay interest on overdue installments of interest at the rate borne by the Securities to the extent lawful. Principal and interest shall be considered paid on the date due (including a redemption date) if the Trustee or the Paying Agent (other than the Company or a Subsidiary or an Affiliate of the Company) has received from or on behalf of the Company on or prior to 11:00 a.m., eastern standard time, on that date, in immediately available funds, money sufficient to pay all principal and interest then due. SECTION 3.2 Maintenance of Office or Agency. The Company shall maintain in the Borough of Manhattan, the City of New York, an office or agency where Securities may be surrendered for registration of transfer or exchange or for presentation for payment and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the address of the Trustee set forth in Section 10.2 of this Indenture. The Company may also from time to time designate one or more other offices or agencies where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind such designa tions; 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 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 agen cy. SECTION 3.3 Limitation on Restricted Payments. (a) So long as any of the Securities are outstanding, the Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, (i) declare or pay any dividend on or make any distribution or similar payment of any sort in respect of its Capital Stock (including any payment in connection with any merger or consolidation involving the Company) to the direct or indirect holders of its Capital Stock (other than dividends or distributions payable solely in its Non-Convertible Capital Stock or rights to acquire its Non-Convertible Capital Stock and dividends or distributions payable solely to the Company or a Restricted Subsidiary and other than pro rata dividends paid by a Subsidiary with respect to a series or class of its Capital Stock the majority of which is held by the Company or a Wholly Owned Subsidiary that is not a Foreign Subsidiary), (ii) purchase, redeem, defease or otherwise acquire or retire for value any Capital Stock of the Company or of any direct or indirect parent of the Company, or, with respect to the Company, exercise any option to exchange any Capital Stock that by its terms is exchangeable solely at the option of the Company (other than into Capital Stock of the Company which is neither Exchangeable Stock nor Redeemable Stock), (iii) purchase, repurchase, redeem, defease or otherwise ac quire or retire for value, prior to scheduled maturity or scheduled repayment thereof or scheduled sinking fund payment thereon, any Subordinated Indebted ness (other than the purchase, repurchase or other acquisition of 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) or (iv) make any Investment, other than a Controlled Non- Subsidiary Investment or a payment described in clause (vi) of the second sentence of Section 3.11, in any Unrestricted Subsidiary or any Affiliate of the Company other than a Restricted Subsidiary or a Person which will become a Restricted Subsidiary as a result of any such Investment (each such payment de scribed in clauses (i)-(iv) of this paragraph, a "Restricted Payment"), unless at the time of and after giving effect to the proposed Restricted Payment: (1) no Default or Event of Default shall have occurred and be continuing (or would result therefrom); (2) the Company would be permitted to Incur an additional $1 of Indebtedness pursuant to the provisions of Section 3.4(a); and (3) the aggregate amount of all such Restricted Payments subsequent to the Issue Date shall not exceed the sum of: (A) 50% of aggregate Consolidated Net Income accrued during the period (treated as one accounting period) from January 1, 1994 to the end of the most recent fiscal quarter for which financial statements are avail able (or if such Consolidated Net Income is a deficit, minus 100% of such deficit), and minus 100% of the amount of any write-downs, write-offs, other negative reevaluations and other negative extraordinary charges not otherwise reflected in Consolidated Net Income during such period; (B) if the Securities are Investment Grade immediately following the Restricted Payment in connection with which this calculation is made, an additional 25% of Consolidated Net Income for any period of one or more consecutive completed fiscal quarters ending with the last fiscal quarter completed prior to the date of such Restricted Payment during which the Securities were Investment Grade for the entire period; (C) the aggregate Net Cash Proceeds received by the Company after January 1, 1994 from the sale of Capital Stock (other than Redeem able Stock or Exchangeable Stock) of the Company to any person other than the Company, any of its Subsidiaries or an employee stock ownership plan; (D) the amount by which the principal amount of, and any accrued interest on, Indebtedness of the Company or its Restricted Subsidiaries is reduced on the Company's Consolidated balance sheet upon the conversion or exchange (other than by a Subsidiary) subsequent to the Issue Date of any Indebtedness of the Company or any Restricted Subsidiary converted or exchanged for Capital Stock (other than Redeemable Stock or Ex changeable Stock) of the Company (less the amount of any cash, or the value of any other property, distributed by the Company or any Restricted Subsidiary upon such conversion or exchange); (E) an amount equal to the net reduction in Investments in Unre stricted Subsidiaries resulting from payments of interest on Indebtedness, dividends, repayments of loans or advances, or other transfers of assets, in each case to the Company or any Restricted Subsidiary from Unrestricted Subsidiaries, or from redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case as provided in the definition of "Investments"), not to exceed in the case of any Unrestricted Subsidiary the amount of Investments previously made by the Company or any Restricted Subsidiary in such Unrestricted Subsidiary; and (F) $15 million. (b) The failure to satisfy the conditions set forth in clauses (2) and (3) of Subsection 3.3(a) shall not prohibit any of the following as long as the condition set forth in clause (1) of Subsection 3.3(a) is satisfied (except as set forth below): (i) notwithstanding clause (1) of Section 3.3(a), the occurrence or existence of a Default at the time of payment of dividends paid within 60 days after the date of declaration thereof if at such date of declaration such dividend would have complied with Subsection 3.3(a); shall not prohibit the payment of such dividends; (ii) any purchase, redemption, defeasance, or other acquisi tion or retirement for value of Capital Stock or Subordinated Indebtedness of the Company made by exchange for, or out of the proceeds of the substantially concurrent sale of, Capital Stock of the Company (other than Redeemable Stock or Exchangeable Stock and other than stock issued or sold to a Subsidiary or to an employee stock ownership plan), provided, however, that notwithstanding clause (1) of Subsection 3.3(a), the occur rence or existence of a Default or Event of Default shall not prohibit, for purposes of this Section, the making of such purchase, redemption, defea sance or other acquisition or retirement, and provided, further, such purchase, redemption, defeasance or other acquisition or retirement shall not be included in the calculation of Restricted Payments made for purpos es of clause (3) of Subsection 3.3(a) and provided, further, that the Net Cash Proceeds from such sale shall be excluded from sub-clause (C) of clause (3) of Subsection 3.3(a); (iii) any purchase, redemption, defeasance or other acqui sition or retirement for value of Subordinated Indebtedness of the Compa ny made by exchange for, or out of the proceeds of the substantially concurrent Incurrence of for cash (other than to a Subsidiary), new In debtedness of the Company, provided, however, that (A) such new Indebtedness shall be contractually subordinated in right of payment to the Securities at least to the same extent as the Indebtedness being so re deemed, repurchased, defeased, acquired or retired, (B) if the Indebt edness being purchased, redeemed, defeased or acquired or retired for value is Non-Recourse Debt, such new Indebtedness shall be Non-Re course Debt, (C) such new Indebtedness has a Stated Maturity either (1) no earlier than the Stated Maturity of the Indebtedness redeemed, repur chased, defeased, acquired or retired or (2) after the Stated Maturity of the Securities and (D) such Indebtedness has an Average Life equal to or greater than the Average Life of the Indebtedness redeemed, repurchased, defeased, acquired or retired, and provided, further, that such purchase, redemption, defeasance or other acquisition or retirement shall not be included in the calculation of Restricted Payments made for purposes of clause (3) of Subsection 3.3(a); (iv) any purchase, redemption, defeasance or other acqui sition or retirement for value of Subordinated Indebtedness upon a Change of Control or an Asset Sale to the extent required by the 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 Securities as described under Section 3.8 or (B) in the case of an Asset Sale, has applied the Net Available Cash from such Asset Sale in accordance with the provisions described under Section 3.12; and SECTION 3.4 Limitation on Incurrence of Indebtedness. (a) The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, Incur any Indebtedness, except that the Company may Incur Indebtedness if, after giving effect thereto, the Consolidated Coverage Ratio would be greater than 2:1. (b) Notwithstanding the foregoing, this Section shall not limit the ability of the Company or any Restricted Subsidiary to Incur the following Indebtedness: (i) Refinancing Indebtedness (except with respect to Indebt edness referred to in clause (ii), (iii) or (iv) below); (ii) in addition to any Indebtedness otherwise permitted to be Incurred hereunder, Indebtedness of the Company at any one time out standing in an aggregate principal amount not to exceed $25,000,000 and provided that the proceeds of such Indebtedness shall not be used for the purpose of making any Restricted Payments pursuant to clause (i) or (ii) of Section 3.3(a); (iii) Indebtedness of the Company which is owed to and held by a Wholly Owned Subsidiary and Indebtedness of a Wholly Owned Subsidiary which is owed to and held by the Company or a Wholly Owned Subsidiary; provided, however, that any subsequent issuance or transfer of any Capital Stock which results in any such Wholly Owned Subsidiary ceasing to be a Wholly Owned Subsidiary or any transfer of such Indebtedness (other than to the Company or a Wholly Owned Subsid iary) shall be deemed, in each case, to constitute the Incurrence of such Indebtedness by the Company or by a Wholly Owned Subsidiary, as the case may be; (iv) Indebtedness of the Company under the Bank Credit Agreement which, when taken together with the aggregate amount of Indebtedness Incurred pursuant to clause (viii) of this subsection, is not in excess of $50,000,000, and Indebtedness of the Company under the Working Capital Credit Agreement not in excess of $25,000,000; (v) Acquired Indebtedness; provided, however, that the Company would have been able to Incur such Indebtedness at the time of the Incurrence thereof pursuant to Section 3.4(a); (vi) Indebtedness of the Company or a Restricted Subsidiary outstanding on the Issue Date (other than Indebtedness referred to in clause (iv) above and Indebtedness being repaid or retired with the pro ceeds of the Offering); (vii) Non-Recourse Debt of a Restricted Subsidiary (other than a Restricted Subsidiary existing on the Issue Date), the proceeds of which are used to acquire, develop, improve or construct a new Facility of such Restricted Subsidiary; (viii) guarantees by the Company of Indebtedness of Re stricted Subsidiaries which, but for such guarantees, would be permitted to be Incurred pursuant to clause (vii) of this Section 3.4(b), provided that the aggregate principal amount of Indebtedness Incurred pursuant to this clause (viii), when taken together with outstanding Indebtedness Incurred under the Bank Credit Agreement pursuant to clause (iv) of this Section 3.4(b), is not in excess of $50,000,000; (ix) Related Asset Indebtedness, provided that at the time of the Incurrence thereof, giving pro forma effect to the Incurrence thereof, Moody's and S&P shall have affirmed their respective ratings of the Securities in effect prior to the Incurrence of such Related Asset In debtedness; and (x) the Securities. (c) Notwithstanding Sections 3.4(a) and (b), the Company shall not Incur any Indebtedness if the proceeds thereof are used, directly or indirectly, to repay, prepay, redeem, defease, retire, refund or refinance any Subordinated Indebtedness unless such repayment, prepayment, redemption, defeasance, retire ment, refunding or refinancing is not prohibited by Section 3.3 or unless such In 6 debtedness shall be contractually subordinated to the Securities at least to the same extent as such Subordinated Indebtedness. SECTION 3.5 Limitation on Payment Restrictions Affecting Subsidiaries. The Company shall not, and shall not permit any Subsidiary to, create or otherwise cause or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to (i) pay dividends to or make any other distributions on its Capital Stock, or pay any Indebtedness or other obligations owed to the Company or any other Restricted Subsidiary, (ii) make any Investments in the Company or any other Restricted Subsidiary or (iii) transfer any of its property or assets to the Company or any other Restricted Subsidiary; provided, however, that the foregoing shall not apply to: (a) any encumbrance or restriction existing pursuant to this Indenture or any other agreement or instrument as in effect or entered into on the Issue Date; (b) any encumbrance or restriction with respect to a Subsidiary pursuant to an agreement relating to any Acquired Indebtedness; provided, however, that such encumbrance or restriction was not Incurred in connection with or in contemplation of such Subsidiary becoming a Subsidiary; (c) any encumbrance or restriction pursuant to an agreement effecting a refinancing of Indebtedness referred to in clause (a) or (b) above or contained in any amendment or modification with respect to such Indebtedness; provided, however, that the encumbrances and restrictions contained in any such agreement, amendment or modification are no less favorable in any material re spect with respect to the matters referred to in clauses (i), (ii) and (iii) above than the encumbrances and restrictions with respect to the Indebtedness being refi nanced, amended or modified; (d) in the case of clause (iii) above, customary non-assignment provisions of (A) any leases governing a leasehold interest, (B) any supply, license or other agreement entered into in the ordinary course of business of the Company or any Subsidiary or (C) any security agreement relating to a Lien permitted by Section 3.7(l), that, in the reasonable determination of the President or Chief Financial Officer of the Company (x) is required in order to obtain such financing referred to in Section 3.7(l) and (y) is customary for such financings; (e) any restrictions with respect to a Subsidiary imposed pursuant to an agreement entered into for the sale or disposition of all or substantially all of the Capital Stock or assets of such Subsidiary pending the closing of such sale or disposition; (f) any encumbrance imposed pursuant to the terms of Indebted ness incurred pursuant to Section 3.4(b)(vii), provided that such encumbrance in the written opinion of the President or Chief Financial Officer of the Company, (x) is required in order to obtain such financing, (y) is customary for such financings and (z) applies only to the assets of or revenues of the applicable Facility; or (g) any encumbrance or restriction existing by reason of applicable law. SECTION 3.6 Limitation on Sale/Leaseback Transactions. The Company shall not, and shall not permit any Restricted Subsidiary to, enter into any Sale/Leaseback Transaction unless (i) the Company or such Subsidiary would be entitled to create a Lien on such property securing Indebtedness in an amount equal to the Attributable Debt with respect to such transaction without equally and ratably securing the Securities pursuant to Section 3.7 or (ii) the net proceeds of such sale are at least equal to the fair value (as determined by the Board of Directors) of such property and the Company or such Subsidiary shall apply or cause to be applied an amount in cash equal to the net proceeds of such sale to the retirement, within 30 days of the effective date of any such arrangement, of Senior Indebtedness or Indebtedness of a Restricted Subsidiary; provided, however, that in addition to the transactions permitted pursuant to the foregoing clauses (i) and (ii), the Company or any Restricted Sub sidiary may enter into a Sale/Leaseback Transaction as long as the sum of (x) the Attributable Debt with respect to such Sale/Leaseback Transaction and all other Sale/Leaseback Transactions entered into pursuant to this proviso, plus (y) the amount of outstanding Indebtedness secured by Liens Incurred pursuant to the final proviso to Section 3.7, does not exceed 10% 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; and provided, further, that a Restricted Subsidiary that is not a Re stricted Subsidiary on the Issue Date may enter into a Sale/Leaseback Transaction with respect to property owned by such Restricted Subsidiary, the proceeds of which are used to acquire, develop, construct, or repay (within 365 days of the commencement of commercial operation of such Facility) Indebtedness Incurred to acquire, develop or construct, a new Facility of such Restricted Subsidiary, as long as neither the Company nor any other Restricted Subsidiary shall have any obligation or liability in connection therewith. SECTION 3.7 Limitation on Liens. The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, incur or permit to exist any Lien of any nature whatsoever on any of its properties (including, without limitation, Capital Stock), whether owned at the date of such Indenture or thereafter acquired, other than (a) pledges or deposits made by such Person 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, or deposits to secure statutory or regulatory obligations of such Person or deposits of cash of United States Gov ernment bonds to secure surety, appeal or performance bonds to which such Person is a party, or deposits as security for contested taxes or import duties or for the payment of rent, in each case Incurred in the ordinary course of business; (b) 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 pro ceedings 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 prosecut ing appeal or other proceedings for review; (c) Liens for property taxes not yet subject to penalties for non-payment or which are being contested in good faith and 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; (d) Liens in favor of issuers or surety bonds or letters of credit issued pursuant to the request of and for the account of such Person in the ordinary course of its business; provided, however, that such letters of credit may not constitute Indebtedness; (e) minor survey exceptions, minor encumbrances, easements or reservations of, or rights of others for, 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 properties or liens incidental to the conduct of the business of such Person or to the ownership of its properties which were not Incurred in connection with Indebtedness or other extensions of credit and which 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; (f) Liens securing Indebted ness Incurred to finance the construction or purchase of, or repairs, improve ments or additions to, property, which shall include, without limitation, Liens on the stock of the Restricted Subsidiary that has purchased or owns such property, provided, however, that the Lien may not extend to any other property owned by the Company or any Restricted Subsidiary at the time the Lien is incurred, and the Indebtedness secured by the Lien may not be issued more than 270 days after the later of the acquisition, completion of construction, repair, improvement, addition or commencement of full operation of the property subject to the Lien; (g) Liens existing on the Issue Date (other than Liens relating to Indebtedness or other obligations being repaid or liens that are otherwise extinguished with the proceeds of the Offering); (h) Liens on property or shares of stock of a Person at the time such Person becomes a Subsidiary; provided, however, that any such Lien may not extend to any other property owned by the Company or any Restricted Subsidiary; (i) Liens on property at the time the Company or a Subsidiary acquires the property, including any acquisition by means of a merger or consolidation with or into the Company or a Subsidiary; provided, however, that such Liens are not incurred in connection with, or in contemplation of, such merger or consolidation; and provided, further, that the Lien may not extend to any other property owned by the Company or any Restricted Subsidiary; (j) Liens securing Indebtedness or other obligations of a Subsidiary owing to the Company or a Wholly Owned Subsidiary; (k) 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, however, that any such Lien may not secure Indebtedness of the Company or any Subsid iary (except by virtue of clause (ix) of the definition of "Indebtedness") and may not extend to any other property owned by the Company or any Restricted Subsidiary; (l) Liens incurred by a Restricted Subsidiary on its assets to secure Non-Recourse Debt Incurred pursuant to Section 3.4(b)(vii), provided that such Lien (A) is Incurred at the time of the initial Incurrence of such Indebtedness and (B) does not extend to any assets or property of the Company or any other Restricted Subsidiary; (m) Liens not in respect of Indebtedness arising from Uni form Commercial Code financing statements for informational purposes with re spect to leases Incurred in the ordinary course of business and not otherwise pro hibited by this Indenture; (n) Liens not in respect of Indebtedness consisting of the interest of the lessor under any lease Incurred in the ordinary course of business and not otherwise prohibited by this Indenture; (o) Liens which consti tute 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; (p) 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 (f), (g), (h) and (i), provided, however, that (x) such new Lien shall be limited to all or part of the same property that secured the original Lien (plus improvements on such property) and (y) the Indebtedness secured by such Lien at such time 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 (q) Liens by which the Securities are secured equally and ratably with other Indebtedness pursuant to this Section 3.7; in any such case without effectively providing that the Securities shall be secured equally and ratably with (or prior to) the obligations so secured for so long as such obligations are so secured; provided, however, that the Company may incur other Liens to secure Indebtedness as long as the sum of (x) the amount of outstanding Indebtedness secured by Liens incurred pursuant to this proviso plus (y) the Attributable Debt with respect to all outstanding leases in connection with Sale/Leaseback Transactions entered into pursuant to the first proviso to Section 3.6 does not exceed 10% of Consolidated Net Tangible Assets as determined with respect to the Company as of the end of the most recent fiscal quarter for which financial statements are available. SECTION 3.8 Change of Control. In the event of a Change of Control Triggering Event, the Compa ny shall make an offer to purchase (the "Change of Control Offer") the Securities then outstanding at a purchase price equal to one hundred one percent (101%) of the principal amount (excluding any premium) thereof plus accrued and unpaid interest to the Change of Control Purchase Date (as defined below) on the terms set forth in this Section. The date on which the Company shall purchase the Securities pursuant to this Section (the "Change of Control Purchase Date") shall be no earlier than 30 days, nor later than 60 days, after the notice referred to below is mailed, unless a longer period shall be required by law. The Company shall notify the Trustee in writing promptly after the occurrence of any Change of Control Triggering Event of the Company's obligation to offer to purchase all of the Securities. Notice of a Change of Control Offer shall be mailed by the Company to the Holders of the Securities at their last registered address (with a copy to the Trustee and the Paying Agent) within thirty (30) days after a Change in Control Triggering Event has occurred. The Change of Control Offer shall remain open from the time of mailing until a date not more than five (5) Business Days before the Change of Control Purchase Date. The notice shall contain all instructions and materials necessary to enable such Holders to tender Securities (in whole or in part) pursuant to the Change of Control Offer. The notice, which shall govern the terms of the Change of Control Offer, shall state: (a) that the Change of Control Offer is being made pursu ant to this Section; (b) the purchase price and the Change of Control Purchase Date; (c) that any Security not surrendered or accepted for pay ment will continue to accrue interest; (d) that any Security accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Purchase Date; (e) that any Holder electing to have a Security purchased (in whole or in part) pursuant to a Change of Control Offer will be required to surrender the Security, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Security completed, to the Paying Agent at the address specified in the notice (or otherwise make effective delivery of the Security pursuant to book-entry procedures and the related rules of the applicable depositories) at least five (5) Business Days before the Change of Control Purchase Date; and (f) that any Holder will be entitled to withdraw his or her election if the Paying Agent receives, not later than three (3) Business Days prior to the Change of Control Purchase Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Security the Holder delivered for purchase and a statement that such Holder is withdrawing his or her election to have the Security purchased. On the Change of Control Purchase Date, the Company shall (i) accept for payment Securities or portions thereof surrendered and properly tendered, and not withdrawn, pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent, no later than 11:00 a.m. eastern standard time, money, in immediately available funds, sufficient to pay the purchase price of all Securities or portions thereof so accepted and (iii) deliver to the Trustee, no later than 11:00 a.m. eastern standard time, Securities so accepted together with an Officers' Certificate stating that such Securities have been accepted for payment by the Company. The Paying Agent shall promptly, and in any event within one (1) Business Day following the deposit and delivery specified in clauses (ii) and (iii) of the immediately preceding sentence, mail or deliver to Holders of Securi ties so accepted payment in an amount equal to the purchase price. Holders whose Securities are purchased only in part will be issued new Securities equal in principal amount to the unpurchased portion of the Securities surrendered. The Company shall comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Securities pursuant to this Section. To the extent that the provisions of any securities laws or regulations conflict with provisions of this Section, the Company shall comply with the appli cable securities laws and regulations and shall not be deemed to have breached its obligations under this Section by virtue thereof. SECTION 3.9 Compliance Certificate. The Company shall, within 120 days after the close of each fiscal year following the issuance of the Securities, file with the Trustee an Officer's Certificate, provided that one Officer executing the same shall be the principal executive officer, the principal financial officer or the principal accounting officer of the Company, covering the period from the date of issuance of the Securities to the end of the fiscal year in which the Securities were issued, in the case of the first such certificate, and covering the preceding fiscal year in the case of each subsequent certificate, and stating whether or not, to the knowledge of each such executing Officer, the Company has complied with and performed and fulfilled all covenants on its part contained in this Indenture and is not in default in the performance or observance of any of the terms or provisions contained in this Indenture, and, if any such signer has obtained knowledge of any default by the Company in the performance, observance or fulfillment of any such covenant, term or provision specifying each such default and the nature thereof. For the purpose of this Section 3.9, compliance shall be determined without regard to any grace period or requirement of notice provided pursuant to the terms of this Indenture. SECTION 3.10 SEC Reports. The Company shall, to the extent required by TIA Sec 314(a), file with the Trustee, within 15 days after the filing with the SEC, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) which the Company is required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act. In the event the Company is at any time no longer subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, it shall, for so long as the Securities remain outstanding, file with the Trustee and the SEC and mail to each Securityholder at such Securityholder's registered address, within 15 days after the Company would have been required to file such documents with the SEC, copies of the annual reports and of the information, documents and other reports which the Company would have been required to file with the SEC if the Company had continued to be subject to such Sections 13 or 15(d). The Company also shall comply with the other provisions of TIA Sec 314(a). SECTION 3.11 Transactions with Affiliates. The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, enter into, permit to exist, renew or extend any transaction or series of transactions (including, without limitation, the sale, purchase, exchange or lease of any assets or property or the rendering of any services) with any Affiliate of the Company unless (i) the terms of such transac tion or series of transactions are (A) no less favorable to the Company or such Restricted Subsidiary, as the case may be, than would be obtainable in a compa rable transaction or series of related transactions in arm's-length dealings with an unrelated third party and (B) set forth in writing, if such transaction or series of transactions involve aggregate payments or consideration in excess of $1,000,000, and (ii) with respect to a transaction or series of transactions involving the sale, purchase, lease or exchange of property or assets having a value in excess of $5,000,000, such transaction or series of transactions 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 of the Company shall have received a written opinion of a nationally recognized investment banking firm stating that such transaction or series of transactions is fair to the Company or such Restricted Subsidiary from a financial point of view. The foregoing provisions do not prohibit (i) the payment of reasonable fees to directors of the Company and its subsidiaries who are not employees of the Company or its subsidiaries; (ii) any transaction between the Company and a Wholly Owned Subsidiary or between Wholly Owned Subsidiaries otherwise permitted by the terms of the Indenture; (iii) the payment of any Restricted Pay ment which is expressly permitted to be paid pursuant to Section 3.3(b); (iv) any issuance of securities or other reasonable payments, awards or grants, in cash or otherwise, pursuant to, or the funding of, employment arrangements approved by the Board of Directors; (v) the grant of stock options or similar rights to employ ees and directors of the Company pursuant to plans approved by the Board of Di rectors; (vi) loans or advances to employees in the ordinary course of business; (vii) 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; (viii) any transaction between or among the Company and any Subsidiary in the ordinary course of business and consistent with past practices of the Company and its Subsidiaries; (ix) payments pursuant to Existing Agreements and payments of principal, interest and commitment fees under the Bank Credit Agreement; and (x) any agreement to do any of the foregoing. 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. SECTION 3.12 Sales of Assets. (a) Neither the Company nor any Restricted Subsidiary shall consummate any Asset Sale unless (i) the Company or such Restricted Subsidiary receives consideration at the time of such Asset Sale at least equal to the fair market value, as determined in good faith by the Board of Directors, of the shares or assets subject to such Asset Sale, (ii) at least 60% of the consideration thereof received by the Company or such Restricted Subsidiary is in the form of cash or cash equivalents which are promptly converted into cash by the Person receiving such payment and (iii) an amount equal to 100% of the Net Available Cash is applied by the Company (or such Subsidiary, as the case may be) as set forth herein. The Company shall not permit any Unrestricted Subsidiary to make any Asset Sale unless such Unrestricted Subsidiary receives consideration at the time of such Asset Sale at least equal to the fair market value of the shares or assets so disposed of as determined in good faith by the Board of Directors. (b) Within three hundred sixty-five (365) days (such 365 days being the "Application Period") following the consummation of an Asset Sale, the Company or such Restricted Subsidiary shall apply the Net Available Cash from such Asset Sale as follows: (i) first, to the extent the Company or such Restrict ed Subsidiary elects, to reinvest in Additional Assets (including by means of an investment in Additional Assets by a Restricted Subsidiary with Net Available Cash received by the Company or another Restricted Subsidiary); (ii) second, to the extent of the balance of such Net Available Cash after application in accor dance with clause (i), and to the extent the Company or such Restricted Subsid iary elects (or is required by the terms of any Senior Indebtedness or any Indebt edness of such Restricted Subsidiary), to prepay, repay or purchase Senior Indebtedness (other than Securities) or Indebtedness (other than any Preferred Stock) of a Restricted Subsidiary (in each case other than Indebtedness owed to the Company or an Affiliate of the Company); (iii) third, to the extent of the balance of such Net Available Cash after application in accordance with clauses (i) and (ii), and to the extent the Company or such Restricted Subsidiary elects, to purchase Securities; and (iv) fourth, to the extent of the balance of such Net Available Cash after application in accordance with clauses (i), (ii) and (iii), to make an offer to purchase Securities pursuant to and subject to the conditions of Section 3.12(c); provided, however, that in connection with any prepayment, repayment or purchase of Indebtedness pursuant to clause (ii), (iii) or (iv) above, the Company or such Restricted Subsidiary shall retire such Indebtedness and cause the related loan commitment (if any) to be permanently reduced in an amount equal to the principal amount so prepaid, repaid or purchased. To the extent that any Net Available Cash from any Asset Sale remains after the applica tion of such Net Available Cash in accordance with this paragraph, the Company or such Restricted Subsidiary may utilize such remaining Net Available Cash in any manner not otherwise prohibited by the Indenture. To the extent that any or all of the Net Available Cash 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 Available Cash so affect ed 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 will not permit repatriation to the United States (the Compa ny hereby agreeing to 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 such affected Net Available Cash is permitted under the applicable local law, such repatriation shall be immediately effected and such repatriated Net Available Cash will be applied in the manner set forth in this Section as if such Asset Sale had occurred on the date of such repatriation. Notwithstanding the foregoing, to the extent that the Board of Directors determines, in good faith, that repatriation of any or all of the Net Available Cash of any Foreign Asset Sale would have a material adverse tax consequence to the Company, the Net Available Cash 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. Notwithstanding the foregoing, this Section shall not apply to, or prevent any sale of assets, property, or Capital Stock of Subsidiaries to the extent that the fair market value (as determined in good faith by the Board of Directors) of such asset, property or Capital Stock, together with the fair market value of all other assets, property, or Capital Stock of Subsidiaries sold, transferred or otherwise disposed of in Asset Sales during the twelve month period preceding the date of such sale, does not exceed 5% of Consolidated Net Tangible Assets as determined as of the end of the most recent fiscal quarter for which financial statements are available, (it being understood that this provision shall only apply with respect to the fair market value of such asset, property or Capital Stock in excess of 5% of consolidated Net Tangible Assets), and no violation of this provision shall be deemed to have occurred as a consequence thereof. In the event of the transfer of substantially all (but not all) of the property and assets of the Company as an entirety to a Person in a transaction permitted under Article IV, the Successor Corporation shall be deemed to have sold the properties and assets of the Company not so transferred for purposes of this Section 3.12, and shall comply with the provisions of this Section 3.12 with respect to such deemed sale as if it were an Asset Sale. (c) Subject to the last sentence of this paragraph, in the event of an Asset Sale that requires the purchase of Securities pursuant to clause (iii) of the first paragraph of Section 3.12(b), the Company will be required to purchase Securities tendered pursuant to an offer by the Company for the Securities (the "Asset Sale Offer") at a purchase price of not less than their principal amount plus accrued interest to the Asset Sale Purchase Date in accordance with the procedures (including proration in the event of oversubscription) set forth in Section 3.12(d). If the aggregate purchase price of Securities tendered pursuant to the Asset Sale Offer is less than the Net Available Cash allotted to the pur chase of the Securities, the Company shall apply the remaining Net Available Cash in accordance with the last sentence of the first paragraph of Section 3.12(b). The Company shall not be required to make an Asset Sale Offer for Securities pursuant to this Section if the Net Available Cash available therefor (after application of the proceeds as provided in Section 3.12(b)(i) and (ii)) is less than $1,000,000 for any particular Asset Sale (which lesser amounts shall not be carried forward for purposes of determining whether an Asset Sale Offer is required with respect to the Net Available Cash from any subsequent Asset Sale). (d) (1) Promptly, and in any event prior to the 360th day after the later of the date of each Asset Sale as to which the Company must make an Asset Sale Offer or the receipt of Net Available Cash therefrom, the Company shall be obligated to deliver to the Trustee and send, by first-class mail to each Holder, a written notice stating that the Holder may elect to have his Securities purchased by the Company either in whole or in part (subject to proration as hereinafter described in the event the Asset Sale Offer is oversubscribed) in integral multiples of $1,000 of principal amount, at the applicable purchase price. The notice shall specify a purchase date not less than 30 days, nor more than 60 days, after the date of such notice (the "Asset Sale Purchase Date") and shall contain the information required in a notice for a Change of Control Offer, to the extent applicable. (2) Not later than the date upon which written notice of an Asset Sale Offer is delivered to the Trustee as provided below, the Company shall deliver to the Trustee an Officers' Certificate as to (i) the amount of the Asset Sale Offer (the "Asset Sale Offer Amount"), (ii) the allocation of the Net Avail able Cash from the Asset Sales pursuant to which such Asset Sale Offer is being made and (iii) the compliance of such allocation with the provisions of Section 3.12(a). On such date, the Company shall also deposit with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust) funds in an amount equal to the Asset Sale Offer Amount to be held for payment in accordance with the provisions of this Section. Upon the expiration of the period for which the Asset Sale Offer remains open (the "Offer Period"), the Company shall deliver, or cause to be delivered, to the Trustee the Securities or portions thereof which have been properly tendered to and are to be accepted by the Company. Paying Agent shall promptly, and in any event within one (1) Business Day following the Asset Sale Purchase Date, mail or deliver payment to each tendering Holder in the amount of the purchase price. In the event that the aggregate purchase price of the Securities delivered, or caused to be delivered, by the Company to the Trustee is less than the Asset Sale Offer Amount, the Paying Agent shall deliver the excess to the Company immediately after the expiration of the Offer Period and the delivery to the Trustee of the Securities, or portions thereof that have been properly tendered to and are to be accepted for payment by the Company. (3) Holders electing to have a Security purchased will be required to surrender the Security, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Security duly completed, to the Company or the Paying Agent, as specified in, and at the address specified in, the notice at least ten Business Days prior to the Asset Sale Purchase Date. Holders will be entitled to withdraw their election if the Trustee or the Paying Agent receives, not later than three Business Days prior to the Asset Sale Purchase Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Security which was delivered for purchase by the Holder and a statement that such Holder is withdrawing his election to have such Security purchased. If at the expiration of the Offer Period the aggregate principal amount of Securities surrendered by Holders exceeds the Asset Sale Offer Amount, the Company shall select the Securities to be purchased on a pro rata basis (with such adjustments as may be deemed appropriate by the Company so that only Securi ties in denominations of $1,000, or integral multiples thereof, shall be purchased) and shall notify the Trustee of its selection in a writing signed by two Officers. Holders whose Securities are purchased only in part will be issued new Securities equal in principal amount to the unpurchased portion of the Securities surren dered. (4) At the time the Company delivers Securities to the Trustee which are to be accepted for purchase, the Company will also deliver an Officers' Certificate stating that such Securities are to be accepted by the Company pursu ant to and in accordance with the terms of this Section. A Security shall be deemed to have been accepted for purchase at the time the Paying Agent, directly or through an agent, mails or delivers payment therefor to the surrendering Holder. (e) The Company shall comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Securities pursuant to this Section. To the extent that the provisions of any securities laws or regulations conflict with provisions of this Section, the Company shall comply with the appli cable securities laws and regulations and shall not be deemed to have breached its obligations under this Section by virtue thereof. SECTION 3.13 Corporate Existence. Except as permitted under Article IV, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and the corporate existence of each Restricted Subsidiary in accordance with the respective organizational documents of the Company and of each Restricted Subsidiary and the rights (charter and statutory), licenses and franchises of the Company and the Restricted Subsidiaries necessary or appropri ate to carry out their businesses; provided, however, that the Company shall not be required to preserve any such right, license or franchise, or the corporate existence of any Restricted Subsidiary, if the preservation thereof is no longer desirable in the conduct of the business of the Company and the Restricted Subsidiaries taken as a whole; and provided, further, that any Restricted Subsid iary may consolidate with, merge into, or sell, convey, transfer, lease or other wise dispose of all or part of its property and assets to the Company or any Wholly Owned Subsidiary to the extent otherwise permitted under this Indenture. SECTION 3.14 Payment of Taxes and Other Claims. The Company shall pay or discharge, or cause to be paid or discharged, before any material penalty accrues thereon all material taxes, assessments and governmental charges levied or imposed upon the Company or any Restricted Subsidiary or upon the income, profits or property of the Compa ny or any Restricted Subsidiary; provided, however, that the Company shall not be required to pay or discharge, or cause to be paid or discharged, any such tax, assessment, charge or claim the amount, applicability or validity of which is being contested in good faith by appropriate proceedings and for which adequate reserves, if the same shall be required in accordance with GAAP, have been made. SECTION 3.15 Notice of Defaults and Other Events. In the event that any Indebtedness of the Company or any Signifi cant Subsidiary having an outstanding principal amount of $1,000,000 or more individually or $2,500,000 or more in the aggregate has been or could be de clared due and payable before its maturity because of the occurrence of any event of default under such Indebtedness (including any Default under this Indenture), the Company, promptly after it becomes aware thereof, will give written notice thereof to the Trustee. SECTION 3.16 Maintenance of Properties and Insurance. The Company shall cause all properties used or useful in the conduct of its business or the business of each Restricted Subsidiary and material to the Company and the Restricted Subsidiaries taken as a whole to be maintained and kept in normal condition, repair and working order and supplied with all necessary equipment; provided, however, that nothing in this Section 3.16 shall prevent the Company or any Restricted Subsidiary from discontinuing the use, operation or maintenance of any of such properties or disposing of any of them, if such discontinuance or disposal is, in the judgment of an Officer (or other employee of the Company or any Restricted Subsidiary) of the Company or such Restricted Subsidiary having managerial responsibility for any such property, appropriate. The Company shall provide or cause to be provided, for itself and the Restricted Subsidiaries, insurance (including appropriate self-insurance) against loss or damage of the kinds customarily insured against by corporations similarly situated and owning like properties, including, but not limited to, product liability insurance and public liability insurance with reputable insurers or with the government of the United States of America, or an agency or instrumen tality thereof, of such kinds, and in such amounts, with such deductibles and by such methods as the Company in good faith shall determine to be reasonable and appropriate in the circumstances. SECTION 3.17 Limitation on Issuance of Capital Stock and Incurrence of Indebtedness of Restricted Subsidiaries. The Company shall not permit any Restricted Subsidiary, directly or indirectly, to issue or sell, and shall not permit any Person other than the Company or a Wholly Owned Subsidiary to own (except to the extent that any such Person may own on the Issue Date), any shares of such Restricted Subsidiary's Capital Stock (including options, warrants or other rights to purchase shares of Capital Stock) except, to the extent otherwise permitted by the Inden ture, (i) to the Company or another Restricted Subsidiary that is a Wholly Owned Subsidiary of the Company, or (ii) if, immediately after giving effect to such issuance and sale, such Restricted Subsidiary would no longer constitute a Restricted Subsidiary for purposes of the Indenture; provided, however, that a Restricted Subsidiary that has an interest in a Facility may sell shares of NonConvertible Stock that is not Preferred Stock if, after giving effect to such sale, the Company or a Wholly Owned Subsidiary continues to hold at least a majority of each class of Capital Stock of such Restricted Subsidiary. The Company shall not permit any Restricted Subsidiary, directly or indirectly, to Incur Indebtedness other than pursuant to Section 3.4(b). SECTION 3.18 Limitation on Changes in the Nature of the Business. The Company and its Subsidiaries shall engage only in 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 but not limited to investing in Facilities; provided that up to 10% of the Company's Consolidated total assets may be used in Unrelated Businesses without constitut ing a violation of this Section. In addition, the Company will, and will 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, however, to the extent that any such law is amended following the Issue Date in such a manner that would (absent application of this proviso) make compliance with this Section 3.18 result in a material adverse effect on the Company's results of operations or financial condition, then the Company shall not be required to comply with this Section 3.18, but only to the extent of actions or failures to act that would (absent application of this proviso) constitute violations of this Covenant solely as a result of such amendment. SECTION 3.19 Limitation on Subsidiary Investments. The Company will not permit any Subsidiary with an interest in a Facility to make any investment in or merge with any other person with an interest in a power generation facility or, except in connection with the acquisi tion of Related Assets by such Subsidiary, in an Unrelated Business. ARTICLE IV CONSOLIDATION, MERGER AND SALE SECTION 4.1 Merger and Consolidation of Company. The Company shall not in a single transaction or through a series of related transactions consolidate with or merge with or into any other corpora tion or sell, assign, convey, transfer or lease or otherwise dispose of all or substantially all of its properties and assets as an entirety to any Person or group of affiliated Persons, unless: (i) either (A) the Company shall be the continuing Person, or (B) the Person (if other than the Company) formed by such consolida tion or into which the Company is merged or to which the properties and assets of the Company as an entirety are transferred (the "Successor Corporation") shall be a corporation organized and existing under the laws of the United States or any State thereof or the District of Columbia and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form and substance reasonably satisfactory to the Trustee, all the obligations of the Company under this Indenture and the Securities; (ii) immediately before and immediately after giving effect to such transaction on a pro forma basis (and treating any Indebtedness which becomes an obligation of the Company (or the Successor Corpora tion if the Company is not the continuing obligor under this Indenture) or any Restricted Subsidiary as a result of such transaction as having been Incurred by such Person at the time of such transaction), no Default shall have occurred and be continuing; (iii) the Company shall have delivered, or caused to be delivered, to the Trustee an Officers' Certificate and, as to legal matters, an Opinion of Counsel, each in form and substance reasonably satisfactory to the Trustee, each stating that such consolidation, merger or transfer and such supplemental indenture comply with this Indenture and that all conditions precedent herein provided for relating to such transaction have been complied with; (iv) immediately after giving effect to such transaction on a pro forma basis (and treating any Indebtedness which becomes an obliga tion of the Company (or the Successor Corporation if the Company is not the continuing obligor under this Indenture) or a Restricted Subsidiary in connection with or as a result of such transaction as having been Incurred by such Person at the time of such transaction), the Company (or the Successor Corporation if the Company is not the continuing obligor under this Indenture) shall have Consolidated Net Worth in an amount which is not less than the Consolidated Net Worth of the Company immediately prior to such transaction; and (v) immediately after giving effect to such transaction on a pro forma basis (and treating any Indebtedness which becomes an obliga tion of the Company (or the Successor Corporation if the Company is not the continuing obligor under the Indenture) or a Restricted Subsidiary in connection with or as a result of such transaction as having been Incurred by such Person at the time of such transaction), the Consolidated Cover age Ratio of the Company (or the Successor Corporation if the Company is not the continuing obligor under the Indenture) is at least 1.10:1, or, if less, equal to the Consolidated Coverage Ratio of the Company immedi ately prior to such transaction; provided that, if the Consolidated Coverage Ratio of the Company before giving effect to such transaction is within the range set forth in column (A) below, then the pro forma Consolidated Coverage Ratio of the Company (or the Successor Corporation if the Company is not the continuing obligor under the Indenture) shall be at least equal to the lesser of (1) the ratio determined by multiplying the percentage set forth in column (B) below by the Consolidated Coverage Ratio of the Company prior to such transaction and (2) the ratio set forth in column (C) below: (A) (B) (C) 1.11:1 to 1.99:1......................................... 100% 1.6:1 2.00:1 to 2.99:1......................................... 90% 2.1:1 3.00:1 to 3.99:1......................................... 80% 2.4:1 4.00:1 or more........................................... 70% 2.5:1 Notwithstanding the foregoing paragraphs (ii), (iv) and (v), any Restricted Subsidiary (other than a Subsidiary having an interest in a Facility) may consolidate with, merge into or transfer all or part of its properties and assets to the Company or any Wholly Owned Subsidiary or Wholly Owned Subsidiaries (other than a Subsidiary or Subsidiaries which have an interest in a Facility) and no violation of this Section shall be deemed to have occurred as a consequence thereof, as long as the requirements of paragraphs (i) and (iii) are satisfied in connection therewith. SECTION 4.2 Successor Substituted. (a) Upon any such consolidation or merger, or any conveyance, transfer, or disposition of all or substantially all of the properties or assets of the Company in accordance with Section 4.1, but not in the case of a lease, the Successor Corporation shall succeed to and be substituted for the Company under this Indenture and the Securities, and the Company shall thereupon be released from all obligations hereunder and under the Securities and the Company, as the predecessor corporation, may thereupon or at any time thereafter be dissolved, wound up or liquidated. The Successor Corporation thereupon may cause to be signed, and may issue either in its own name or in the name of the Company, all or any of the Securities issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee; and, upon the order of the Successor Corporation instead of the Company and subject to all the terms, conditions and limitations prescribed in this Indenture, the Trustee shall authenti cate and shall deliver any Securities which the Successor Corporation thereafter shall cause to be signed and delivered to the Trustee for that purpose. All the Securities so issued shall in all respects have the same legal rank and benefit under this Indenture as the Securities theretofore or thereafter issued in accor dance with the terms of this Indenture as though all such Securities had been issued at the date of the execution hereof. (b) In the case of any consolidation, merger or transfer described in Section 4.2(a) above, such changes in form (but not in substance) may be made in the Securities thereafter to be issued as may be appropriate. ARTICLE V DEFAULTS AND REMEDIES SECTION 5.1 Events of Default. An "Event of Default" means any of the following events: (a) default in the payment of interest on any Security when the same becomes due and payable, and such default continues for a period of 30 days; (b) default in the payment of the principal of any Security when the same becomes due and payable at maturity or otherwise or a failure to redeem or purchase Securities when required pursuant to this Indenture or the Securities; (c) default in performance of any other covenants or agree ments in the Securities or this Indenture and the 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 the Trustee by Holders of at least 25% in principal amount of the Securities then outstanding hereun der; (d) there shall have occurred either (i) a default by the Company or any Subsidiary under any instrument or instruments under which there is or may be secured or evidenced any Indebtedness of the Company or any Subsidiary of the Company (other than the Securities) having an outstanding principal amount of $2,000,000 (or its foreign currency equivalent) or more individually or $5,000,000 (or its foreign currency equivalent) or more in the aggregate that has caused the holders thereof to declare such Indebtedness to be due and payable prior to its Stated Maturity or (ii) a default by the Company or any Subsidiary in the payment when due of any portion of the principal under any such instru ment, and such unpaid portion exceeds $2,000,000 (or its foreign currency equivalent) individually or $5,000,000 (or its foreign currency equivalent) in the aggregate and is not paid, or such default is not cured or waived, within any grace period applicable thereto, unless such Indebtedness is dis charged within 20 days of the Company or a Restricted Subsidiary becom 7 ing aware of such default; provided, however, that the foregoing shall not apply to any default on Non-Recourse Indebtedness; (e) any final judgment or order (not covered by insurance) for the payment of money shall be rendered against the Company or any Significant Subsidiary in an amount in excess of $2,000,000 (or its foreign currency equivalent) individually or $5,000,000 (or its foreign currency equivalent) in the aggregate for all such final judgments or orders against all such Persons (treating any deductibles, self-insurance or retention as not so covered) and shall not be discharged, and there shall be any period of 30 consecutive days following entry of the final judgment or order in excess of $2,000,000 (or its foreign currency equivalent) individually or that causes the aggregate amount for all such final judgments or orders outstanding against all such Persons to exceed $5,000,000 (or its foreign currency equivalent) during which a stay of enforcement of such final judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; (f) the Company or any Significant Subsidiary pursuant to or within the meaning of any Bankruptcy Law: (i) commences a voluntary case, (ii) consents to the entry of an order for relief against it in an involuntary case, (iii) consents to the appointment of a Custodian of it or for all or substantially all of its property, (iv) makes a general assignment for the benefit of its credi tors, or (v) admits in writing its inability to generally pay its debts as such debts become due; or takes any comparable action under any foreign laws relating to insol vency; (g) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (i) is for relief against the Company or any Significant Subsidiary in an involuntary case, (ii) appoints a Custodian of the Company or any Significant Subsidiary or for all or substantially all of its property, or (iii) orders the winding up or liquidation of the Company or any Significant Subsidiary; or any similar relief is granted under any foreign laws; and the order or decree remains unstayed and in effect for 60 days. The term "Bankruptcy Law" means Title 11 of the United States Code or any similar Federal or State law for the relief of debtors. The term "Custodian" means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law. Any notice of Default given by the Trustee or Securityholders under this Section must specify the Default, demand that it be remedied and state that the notice is a "Notice of Default." The Company shall deliver to the Trustee, within 30 days after the occurrence thereof, written notice of any event which with the giving of notice or the lapse of time or both would become an Event of Default under clause (c), (d), (e) or (g) hereof. Subject to the provisions of Section 6.1 and 6.2, the Trustee shall not be charged with knowledge of any Event of Default unless written notice thereof shall have been given to the Trustee by the Company, the Paying Agent, any Holder or an agent of any Holder. SECTION 5.2 Acceleration. If an Event of Default (other than an Event of Default specified in clause (f) and (g) of Section 5.1 with respect to the Company) occurs and is continuing, the Trustee by notice to the Company, or the Holders of at least 25% in principal amount of the Securities by notice to the Company and the Trustee, may declare the principal of and accrued and unpaid interest on all the Securities to be due and payable. Upon such declaration the principal and interest shall be due and payable immediately. If an Event of Default specified in clause (f) or (g) of Section 5.1 with respect to the Company occurs, the principal of and interest on all the Securities shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Securityholders. The Holders of a majority in principal amount of the Securities by notice to the Trustee may rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default have been cured or waived except nonpayment of principal or interest that has become due solely because of the acceleration. No such rescis sion shall affect any subsequent or other Default or Event of Default or impair any consequent right. SECTION 5.3 Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal or interest on the Securities or to enforce the performance of any provision of the Securities or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Securityholder 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 5.4 Waiver of Past Defaults. The Holders of a majority in principal amount of the Securities by notice to the Trustee may waive an existing Default and its consequences except (a) a Default in the payment of the principal of or interest on any Security or (b) a Default in respect of a provision that under Section 8.2 cannot be amended without the consent of each Securityholder affected. When a Default is waived, it is deemed cured, but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any consequent right. SECTION 5.5 Control by Majority. The Holders of a majority in principal amount of the Securities may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture, or, subject to Section 6.1, that the Trustee determines is unduly prejudicial to the rights of other Securityholders, or would involve the Trustee in personal liability; provided, however, that the Trustee may take any other action deemed proper by the Trustee that is not inconsistent with such direction. Prior to taking any action hereunder, the Trustee shall be entitled to indemnification reasonably satisfactory to it against all risk, losses and expenses caused by taking or not taking such action. Subject to Section 6.1, 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 the Securityholders pursuant to this Indenture, unless such Securityholders shall have provided to the Trustee security or indemnity reasonably satisfactory to it against the costs, expenses and liabilities which might be incurred in compliance with such request or direction. SECTION 5.6 Limitation on Suits. A Securityholder may pursue a remedy with respect to this Inden ture or the Securities only if: (a) the Holder gives to the Trustee written notice of a continuing Event of Default; (b) the Holders of at least 25% in principal amount of the Securities make a written request to the Trustee to pursue the remedy; (c) such Holder or Holders offer to the Trustee security reasonably satisfactory to it or indemnity against any loss, liability or expense; (d) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of security or indemnity; and (e) the Holders of a majority in principal amount of the Securities do not give the Trustee a direction inconsistent with the request during such 60-day period. A Securityholder may not use this Indenture to prejudice the rights of another Securityholder or to obtain a preference or priority over another Securityholder. SECTION 5.7 Rights of Holders To Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder of a Security to receive payment of principal and interest on the Security, on or after the respective due dates expressed in the Security, 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 the Holder. SECTION 5.8 Collection Suit by Trustee. If an Event of Default specified in Section 5.1(a) or (b) occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company for the whole amount of principal and interest remaining unpaid (together with interest on such unpaid interest to the extent lawful) and the amounts provided for in Section 6.7. SECTION 5.9 Trustee May File Proofs of Claim. The Trustee may file such proofs of claim and other papers or documents and take such other actions including participating as a member or otherwise in any committees of creditors appointed in the matter as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the amounts provided in Section 6.7) and the Securityholders allowed in any judicial proceedings relative to the Company, its creditors or its property and, unless prohibited by law or applicable regulations, may vote on behalf of the Holders in any election of a trustee in bankruptcy or other Person performing similar functions, and any Custodian in any such judicial proceeding is hereby authorized by each Holder to make payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, ex penses, disbursements and advances of the Trustee, its agents and its counsel, and any other amounts due the Trustee under Section 6.7. To the extent that the pay ment of any such amount due to the Trustee under Section 6.7 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, divi dends, money, securities and other properties which the Holders of the Securities may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. SECTION 5.10 Priorities. If the Trustee collects any money pursuant to this Article, it shall pay out the money in the following order: First: to the Trustee for amounts due under Section 6.7; Second: to Securityholders for amounts due and unpaid on the Securities for principal, premium, if any, and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for principal and interest, respectively; and Third: to the Company. The Trustee may fix a record date and payment date for any payment to Securityholders pursuant to this Section. At least 15 days before such record date, the Company shall give written notice to each Securityholder and the Trustee of the record date, the payment date and amount to be paid. SECTION 5.11 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 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 discre tion 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 does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 5.7, or a suit by Holders of more than 10% in principal amount of the Securities. SECTION 5.12 Waiver of Stay or Extension Laws. The Company shall not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or exten sion law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company hereby expressly waives all benefit or advantage of any such law, and shall not 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 had been enacted. ARTICLE VI TRUSTEE SECTION 6.1 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 their exercise, as a prudent Person would exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of an Event of Default: (i) 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. (ii) 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. Howev er, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) This paragraph does not limit the effect of paragraph (b) of this Section. (ii) The Trustee shall not be liable for any error of judg ment made in good faith by a Trust Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts. (iii) 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 5.2, 5.4 or 5.5. (iv) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, unless it receives indemnity satisfactory to it against any risk, loss, liability or expense. (d) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b) and (c) of this Section. (e) The Trustee, in its capacity as Trustee and Registrar and Paying Agent, shall not be liable to the Company, the Securityholders or any other Person for interest on any money received by it, including, but not limited to, money with respect to principal of or interest on the Securities, except as the Trustee may agree with the Company. (f) Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. SECTION 6.2 Rights of Trustee. (a) The Trustee may rely on any document reasonably 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 Officers' Certificate, 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 any such Officers' Certificate or Opinion of Counsel. (c) The Trustee may act through agents and shall not be responsi ble 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 which it believes to be authorized or within its rights or powers provided, however, that the Trustee's conduct does not constitute wilful misconduct, negligence or bad faith. (e) The Trustee may consult with counsel of its selection, and the advice or opinion of such counsel as to matters of law shall be full and complete authorization and protection from liability in respect of any action taken, omitted or suffered by it hereunder in good faith and in accordance with the advice of such counsel. (f) The Trustee shall not be obligated to make any investigation into the facts or matters stated in any resolution, certificate, statement, instru ment, opinion, report, notice, request, direction, consent, order, bond, debenture or any other paper or document. SECTION 6.3 Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company or an Affiliate with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. However, the Trustee is subject to Sections 6.10 and 6.11. SECTION 6.4 Trustee's Disclaimer. The Trustee shall not be responsible for and makes no representa tion as to the validity or adequacy of this Indenture or the Securities, it shall not be accountable for the Company's use of the proceeds from the Securities, and it shall not be responsible for any statement in the Securities other than its authenti cation. The Trustee shall have no duty to ascertain or inquire as to the perfor mance of the Company's covenants in Article III hereof. SECTION 6.5 Notice of Defaults. If a Default or an Event of Default occurs and is continuing and if it is actually known to a Trust Officer of the Trustee, the Trustee shall mail to Securityholders a notice of the Default or Event of Default within 90 days after a Trust Officer of the Trustee has actual knowledge of the occurrence thereof. Except in the case of a Default in any payment on any Security, the Trustee may withhold the notice if and so long as a committee of its Trust Officers in good faith determines that withholding the notice is in the interests of Securityholders. SECTION 6.6 Reports by Trustee to Holders. Within 60 days after the reporting date stated in Section 10.10, the Trustee shall mail to Securityholders a brief report dated as of such date that complies with TIA Sec 313(a) if required by that Section. The Trustee also shall comply with TIA Sec 313(b)(2). A copy of each report at the time of its mailing to Securityholders shall be filed with the SEC and each stock exchange on which the Securities are listed. The Company shall promptly notify the Trustee when the Securities are listed on any stock exchange and of any delisting thereof. SECTION 6.7 Compensation and Indemnity. The Company shall pay to the Trustee from time to time such compensation for its services as the parties shall agree. The Trustee's compensa tion shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee upon request for all reasonable out-of-pocket disbursements, expenses and advances incurred by it. Such expenses shall include the reasonable compensation and out-of-pocket disburse ments and expenses of the Trustee's agents and counsel. The Company shall indemnify the Trustee for, and hold it harmless against, any loss, liability or expense, including reasonable attorneys' fees, disbursements and expenses, incurred by it arising out of or in connection with the administration of this trust and the performance of its duties hereunder including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. The 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 expens es of such counsel. The Company need not pay for any settlement made without its consent, which consent shall not be unreasonably withheld. The Company need not reimburse any expense or indemnify against any loss or liability incurred by the Trustee through negligence or bad faith. To secure the Company's payment obligations in this Section, the Trustee shall have a Lien prior to the Securities on all money or property held or collected by the Trustee, except that held in trust to pay principal and interest on particular Securities. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 5.1(f) or (g) occurs, the expenses and the compensation for the services are intended to constitute expenses of adminis tration under any Bankruptcy Law. The Company's obligations under this Section 6.7 and any Lien arising hereunder shall survive the resignation or removal of the Trustee, the discharge of the Company's obligations pursuant to Article VII of this Indenture and the termination of this Indenture. SECTION 6.8 Replacement of Trustee. 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. The Trustee may resign at any time by so notifying the Company. The Holders of a majority in principal amount of the Securities may, by written notice to the Trustee, remove the Trustee by so notifying the Trustee and the Company. The Company, by notice to the Trustee, shall remove the Trustee if: (a) the Trustee fails to comply with Section 6.10; (b) the Trustee is adjudged a bankrupt or an insolvent; (c) a receiver or public officer takes charge of the Trustee or its property; or (d) the Trustee becomes incapable of acting. 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 Securities may appoint a successor Trustee to replace the successor Trustee appointed by the Company. 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 Securities may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with Section 6.10, any Securityholder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon the resigna tion 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 Securityholders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, subject to the Lien provided for in Section 6.7. SECTION 6.9 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 6.10 Eligibility; Disqualification. This Indenture shall always have a Trustee who satisfies the requirements of TIA Sec 310(a)(1). The Trustee shall always have a combined capital and surplus of at least $50,000,000 as set forth in its most recent pub lished annual report of condition. The Trustee shall comply with TIA Sec 310(b). Nothing herein shall prevent the Trustee from filing with the SEC the application referred to in the second-to-last paragraph of TIA Sec 310(b). SECTION 6.11 Preferential Collection of Claims Against Company. The Trustee shall comply with TIA Sec 311(a), except with respect to any creditor relationship listed in TIA Sec 311(b). A Trustee who has resigned or been removed is subject to TIA Sec 311(a) to the extent indicated. ARTICLE VII SATISFACTION AND DISCHARGE OF INDENTURE SECTION 7.1 Discharge of Liability on Securities; Defeasance. If (i) the Company delivers to the Trustee all outstanding Securities (other than Securities replaced pursuant to Section 2.9) for cancellation or (ii) all outstanding Securities have become due and payable and the Company irrevoca bly deposits with the Trustee as trust funds solely for the benefit of the Holders for that purpose funds sufficient to pay at maturity the principal of and all accrued interest on all outstanding Securities (other than Securities replaced pursuant to Section 2.9), and if in either case the Company pays all other sums payable hereunder by the Company, then, subject to Sections 7.2 and 7.7, this Indenture shall cease to be of further effect. The Trustee shall acknowledge satisfaction and discharge of this Indenture on demand of the Company accompa nied by an Officers' Certificate and an Opinion of Counsel and at the cost and expense of the Company. SECTION 7.2 Termination of Company's Obligations. Except as otherwise provided in this Section 7.2, the Company may terminate its obligations under the Securities and this Indenture if: (i) the Securities mature within one year or all of them are to be called for redemption within one year under arrangements satisfactory to the Trustee for giving the notice of redemption, (ii) the Company irrevocably depos its in trust with the Trustee or Paying Agent (other than the Company or a Subsidiary or Affiliate of the Company) under the terms of an irrevocable trust agreement in form and substance satisfactory to the Trustee, as trust funds solely for the benefit of the Holders for that purpose, money or U.S. Government Obli gations that, through the payment of interest and principal in respect thereof in accordance with its terms, will provide, not later than one (1) Business Day prior to the applicable payment date, money sufficient (in the opinion of a nationally recognized firm of independent public accountants expressed in a written certif ication thereof delivered to the Trustee), without consideration of any reinvest ment of interest, to pay principal and interest on the Securities to maturity or redemption, as the case may be, and to pay all other sums payable by it hereun der, (iii) no Default shall have occurred and be continuing on the date of such deposit, (iv) such deposit will not result in or constitute a Default or result in a breach or violation of, or constitute a default under, any other agreement or in strument to which the Company is a party or by which it is bound and (v) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, in each case stating that all conditions precedent provided for herein relating to the satisfaction and discharge of this Indenture have been complied with; provided that the Trustee or Paying Agent shall have been irrevocably instructed to apply such money or the proceeds of such U.S. Government Obligations to the payment of such principal and interest with respect to the Secu rities. With respect to the foregoing, the Company's obligations in Sections 2.2, 2.3, 2.4, 2.5, 2.6, 2.7, 2.8, 2.9, 2.14, 3.1, 3.2, 6.7, 6.8, 7.5 and 7.6 shall survive until the Securities are no longer outstanding. Thereafter, only the Company's obligations in Sections 6.7, 6.8 and 7.6 shall survive. After any such irrevocable deposit and fulfillment of the other requirements of this Section 7.2, the Trustee upon request shall acknowledge in writing the discharge of the Company's obligations under the Securities and this Indenture except for those surviving obligations specified above. SECTION 7.3 Defeasance and Discharge of Indenture. The Company will be deemed to have paid and will be discharged from any and all obligations in respect of the Securities on the 123rd day after the date of the deposit referred to in clause (i) hereof, and the provisions of this Indenture will no longer be in effect with respect to the Securities, in each case subject to the penultimate paragraph of this Section 7.3, and the Trustee, at the reasonable request of and at the expense of the Company, shall execute proper in struments acknowledging the same, except as to (a) rights of registration of transfer and exchange, (b) substitution of apparently mutilated, defaced, de stroyed, lost or stolen Securities, (c) rights of Holders to receive payments of principal thereof and interest thereon, (d) the Company's obligations under Section 3.2, (e) the rights, obligations and immunities of the Trustee hereunder including, without limitation, those arising under Section 6.7 hereof, (f) the rights of the Holders as beneficiaries of this Indenture with respect to the property so deposited with the Trustee payable to all or any of them and (g) the rights, obligations and immunities which survive as provided in the penultimate para graph of this Section 7.3; provided that the following conditions shall have been satisfied: (i) with reference to this Section 7.3, the Company has irrevocably deposited or caused to be irrevocably deposited with the Trustee (or another trustee satisfying the requirement of Section 6.10) or Paying Agent (other than the Company or a Subsidiary or Affiliate of the Company) and conveyed all right, title and interest for the benefit of the Holders, under the terms of an irrevocable trust agreement in form and substance satisfactory to the Trustee as trust funds in trust, specifically pledged as security for, and dedicated solely to, the benefit of the Holders, in and to, (A) money in an amount, (B) U.S. Government Obligations that, through the payment of interest and principal in respect thereof in accordance with their terms, will provide, not later than one Business Day before the due date of any payment referred to in this clause (i), money in an amount or (C) a combination thereof in an amount sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, without consideration of any reinvestment of interest and after payment of all federal, state and local taxes or other fees, charges and assessments in respect thereof payable by the Trustee or Paying Agent, the principal of and interest on the outstanding Securities when due; provided that the Trustee or Paying Agent shall have been irrevo cably instructed to apply such money or the proceeds of such U.S. Gov ernment Obligations to the payment of such principal and interest with respect to the Securities; (ii) such deposit will not result in or constitute a Default or result in a breach or violation of, or constitute a default under, any other agreement or instrument to which the Company is a party or by which it is bound; (iii) no Default shall have occurred and be continuing on the date of such deposit or during the period ending on the 123rd day after such date of deposit; (iv) the Company shall have delivered to the Trustee (A) either (1) a ruling directed to the Trustee received from the Internal Revenue Service to the effect that the Holders will not recognize income, gain or loss for federal income tax purposes as a result of the Company's exercise of its option under this Section 7.3 and will be subject to federal income tax on the same amount and in the same manner and at the same times as would have been the case if such option had not been exercised or (2) an Opinion of Counsel (who may not be an employee of the Com pany) to the same effect as the ruling described in clause (1) accompanied by a ruling to that effect published by the Internal Revenue Service, unless there has been a change in the applicable federal income tax law since the date of this Indenture such that a ruling from the Internal Revenue Service is no longer required and (B) an Opinion of Counsel to the effect that (1) the creation of the defeasance trust does not violate the Investment Com pany Act of 1940, (2) after the passage of 123 days following the deposit (except, with respect to any trust funds for the account of any Holder who may be deemed to be an "insider" for purposes of Title 11 of the United States Code, after one year following the deposit), the trust funds will not be subject to the effect of Section 547 of the United States Bankruptcy Code or Section 15 of the New York Debtor and Creditor Law in a case commenced by or against the Company under either such statute, and either (x) the trust funds will no longer remain the property of the Compa ny (and therefore, will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally) or (y) if a court were to rule under any such law in any case or proceeding that the trust funds remained property of the Company, (I) assuming such trust funds remained in the possession of the Trustee prior to such court ruling to the extent not paid to Holders, the Trustee will hold, for the benefit of the Holders, a valid and perfected security interest in such trust funds that is not avoidable in bankruptcy or otherwise except for the effect of Section 552(b) of the United States Bankruptcy Code on interest on the trust funds accruing after the commencement of a case under such statute and (II) the Holders will be entitled to receive adequate protection of their interests in such trust funds if such trust funds are used in such case or proceeding; and (v) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, in each case stating that all condi tions precedent provided for herein relating to the defeasance contemplated by this Section 7.3 have been complied with. Notwithstanding the foregoing clause (i), prior to the end of the 123-day period referred to in clause (iv)(B)(2) above, none of the Company's obligations under this Indenture shall be discharged. Subsequent to the end of such 123-day period with respect to this Section 7.3, the Company's obligations in Sections 2.2, 2.3, 2.4, 2.5, 2.6, 2.7, 2.8, 2.9, 2.14, 3.1, 3.2, 6.7, 6.8, 7.6 and 7.7 shall survive until the Securities are no longer outstanding. Thereafter, only the Company's obligations in Sections 6.7, 7.6 and 7.7 shall survive. If and when a ruling from the Internal Revenue Service or Opinion of Counsel referred to in clause (iv(A) above is able to be provided specifically without regard to, and not in reliance upon, the continuance of the Company's obligations under Section 3.1, then the Company's obligations under such Section 3.1 shall cease upon delivery to the Trustee of such ruling or Opinion of Counsel and compliance with the other conditions precedent provided for herein relating to the defeasance contemplated by this Section 7.3. After any such irrevocable deposit and the fulfillment of the other requirements of this Section 7.3, the Trustee upon request shall acknowledge in writing the discharge of the Company's obligations under the Securities and this Indenture except for those surviving obligations in the immediately preceding paragraph. SECTION 7.4 Defeasance of Certain Obligations. The Company may omit to comply with any term, provision or condition set forth in clauses (iv) and (v) of Section 4.1 and Sections 3.3 through 3.19, and clause (c) of Section 5.1 with respect to clauses (iv) and (v) of Section 4.1 and Section 3.3 through 3.19, and clauses (d) and (e) of Section 5.1 shall be deemed not to be Events of Default, in each case with respect to the outstanding Securities if: (i) with reference to this Section 7.4, the Company has irrevocably deposited or caused to be irrevocably deposited with the Trustee (or another trustee satisfying the requirements of Section 6.10) or Paying Agent (other than the Company or a Subsidiary or Affiliate of the Company) and conveyed all right, title and interest for the benefit of the Holders, under the terms of an irrevocable trust agreement in form and substance satisfactory to the Trustee as trust funds in trust, specifically pledged as security for, and dedicated solely to, the benefit of the Holders, in and to, (A) money in an amount, (B) U.S. Government Obligations that, through the payment of interest and principal in respect thereof in accordance with their terms, will provide, not later than one Business Day before the due date of any payment referred to in this clause (i), money in an amount or (C) a combination thereof in an amount, sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, without consideration of the reinvestment of such interest and after payment of all federal, state and local taxes or other fees, charges and assessments in respect thereof payable by the Trustee or Paying Agent, the principal of and interest on the outstanding Securities when due; provided that the Trustee or Paying Agent shall have been irrevocably instructed to apply such money or the proceeds of such U.S. Government Obligations to the payment of such principal and interest with respect to the Securities; (ii) such deposit will not result in or constitute a Default or result in a breach or violation of, or constitute a default under, any other agreement or instrument to which the Company is a party or by which it is bound; (iii) no Default shall have occurred and be continuing on the date of such deposit; (iv) the Company has delivered to the Trustee an Opinion of Counsel who is not employed by the Company to the effect that (A) the creation of the defeasance trust does not violate the Investment Company Act of 1940, (B) the Holders have a valid first-priority security interest in the trust funds, (C) the Holders will not recognize income, gain or loss for federal income tax purposes as a result of such deposit and defeasance of certain obligations and will be subject to federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred and (D) after the passage of 123 days following the deposit (except, with respect to any trust funds for the account of any Holder who may be deemed to be an "insider" for purposes of the United States Bankruptcy Code, after one year following the deposit), the trust funds will not be subject to the effect of Section 547 of the United States Bankruptcy Code or Section 15 of the New York Debtor and Creditor Law in a case commenced by or against the Company under either such statute, and either (1) the trust funds will no longer remain the property of the Company (and therefore, will not be subject to the effect of any applicable bankruptcy, insolvency, reorganiza tion or similar laws affecting creditors' rights generally) or (2) if a court were to rule under any such law in any case or proceeding that the trust funds remained property of the Company, (x) assuming such trust funds remained in the possession of the Trustee prior to such court ruling to the extent not paid to Holders, the Trustee will hold, for the benefit of the Holders, a valid and perfected security interest in such trust funds that is not avoidable in bankruptcy or otherwise except for the effect of Section 552(b) of the United States Bankruptcy Code on interest on the trust funds accruing after the commencement of a case under such statute and (y) the Holders will be entitled to receive adequate protection of their interests in such trust funds if such trust funds are used in such case or proceeding; and (v) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, in each case stating that all condi tions precedent provided for herein relating to the defeasance contemplated by this Section 7.4 have been complied with. SECTION 7.5 Application of Trust Money. Subject to Section 7.7 of this Indenture, the Trustee or Paying Agent shall hold in trust money or U.S. Government Obligations deposited with it pursuant to Section 7.2, 7.3 or 7.4 of this Indenture, as the case may be, and shall apply the deposited money and the money from U.S. Government Obliga tions in accordance with this Indenture to the payment of principal of and interest on the Securities. The Trustee shall be under no obligation to invest such money or U.S. Government Obligations except as it may agree with the Company and in no event shall the Trustee have any liability for, or in respect of, any such investment made as agreed with the Company. SECTION 7.6 Repayment to Company. Subject to Sections 6.7, 7.2, 7.3 and 7.4 of this Indenture, the Trustee and the Paying Agent shall promptly pay to the Company upon written request any excess money held by them at any time and thereupon shall be relieved from all liability with respect to such money. The Trustee and the Paying Agent shall pay to the Company upon written request any money held by them for the payment of principal or interest that remains unclaimed for two years; provided, however, that the Company shall if requested by the Trustee or the Paying Agent, give the Trustee or such Paying Agent indemnification reason ably satisfactory to it against any and all liability which may be incurred by it by reason of such payment; and provided, further, that the Trustee or such Paying Agent before being required to make any payment may cause to be published at the request and expense of the Company once in a newspaper of general circula tion in the City of New York or mail to each Holder entitled to such money at such Holder's address as set forth in the Security Register notice that such money remains unclaimed and that after a date specified therein (which shall be at least 30 days from the date of such publication or mailing) any unclaimed balance of such money then remaining will be repaid to the Company. After payment to the Company, Holders entitled to such money must look to the Company for payment as general creditors unless an applicable law designates another person, and all liability of the Trustee and such Paying Agent with respect to such money shall cease. SECTION 7.7 Reinstatement. If the Trustee or Paying Agent is unable to apply any money or U.S. Government Obligations in accordance with Section 7.2, 7.3 or 7.4 of this Indenture, as the case may be, by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restrain ing or otherwise prohibiting such application, the Company's obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to Section 7.2, 7.3 or 7.4 of this Indenture, as the case may be, until such time as the Trustee or Paying Agent is permitted to apply all such money or U.S. Government Obligations in accordance with Section 7.2, 7.3 or 7.4 of this Indenture, as the case may be; provided that, if the Company has made any payment of principal of or interest on any Securities because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money or U.S. Government Obligations held by the Trustee or Paying Agent. ARTICLE VIII AMENDMENTS AND SUPPLEMENTS SECTION 8.1 Without Consent of Holders. The Company and the Trustee may amend this Indenture or the Securities or enter into an indenture or indentures supplemental hereto (which shall conform to the provisions of the Trust Indenture Act as then in effect) without notice to or the consent of any Securityholder for one or more of the following purposes: (a) to cure any ambiguity, omission, defect or inconsistency; (b) to comply with Article IV; (c) to provide for uncertificated Securities in addition to certificated Securities; provided, however, that the uncertificated Securities are issued in registered form for purposes of Section 163(f) of the Internal Revenue Code of 1986, as amended, or in a manner such that the uncertificated Securities are described in Section 163(f)(2)(B) of the Code; (d) to add additional guarantees with respect to the Securi ties or to secure the Securities; (e) to add to the covenants of the Company for the benefit of the Holders or to surrender any right or power herein conferred upon the Company; (f) to comply with the requirements of the SEC in con nection with qualification of the Indenture under the TIA; (g) to make any change that does not adversely affect the rights of any Securityholder; or (h) to provide for the issuance of additional Securities in an aggregate principal amount not to exceed $75,000,000; provided, howev er, the aggregate principal amount of Securities outstanding at any time may not exceed $275,000,000. After an amendment or supplement under this Section becomes effective, the Company shall mail to Securityholders a notice briefly describing such amendment or supplement. The failure to give such notice to all Securityholders, or any defect therein, shall not impair or affect the validity of an amendment or supplement under this Section. SECTION 8.2 With Consent of Holders. The Company and the Trustee may amend or supplement this Indenture or the Securities with the written consent of the Holders of a majority in principal amount of the Securities. However, without the consent of each Securityholder affected, an amendment or supplement under this Section may not: (a) reduce the amount of Securities the Holders of which must consent to an amendment or supplement; (b) reduce the rate of or change the time for payment of interest on any Security; (c) reduce the principal of or change the Stated Maturity of any Security; (d) reduce the premium payable upon the redemption of any Security or change the time at which any Security may or shall be redeemed in accordance with Article IX; (e) make any Security payable in currency or consideration other than that stated in the Security; (f) make any change in Section 5.4, Section 5.7 or this second sentence of this Section 8.2. It shall not be necessary for the consent of the Holders under this Section 8.2 to approve the particular form of any proposed amendment, supple ment or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment or supplement under this Section becomes effective, the Company shall mail to Securityholders a notice briefly describing such amendment or supplement. The failure to give such notice to all Securityholders, or any defect therein, shall not impair or affect the validity of an amendment or supplement under this Section. SECTION 8.3 Compliance with Trust Indenture Act. Every amendment or supplement to this Indenture or the Securities shall be set forth in a supplemental indenture that complies with the TIA as then in effect. SECTION 8.4 Revocation and Effect of Consents. Until an amendment or supplement under this Article or a waiver under Article VI becomes effective, a consent to it by a Holder of a Security is a continuing consent by the Holder and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's Security, even if notation of the consent is not made on any Security. However, any such Holder or subsequent Holder may revoke the consent as to his Security or portion of a Security if the Trustee receives the notice of revocation before the date the amendment, supplement or waiver becomes effective. After an amendment or supplement becomes effective, it shall bind every Securityholder. SECTION 8.5 Notation on or Exchange of Securities. If an amendment changes the terms of a Security, the Trustee may require the Holder of the Security to deliver it to the Trustee. The Trustee may place an appropriate notation on the Security regarding the changed terms and return it to the Holder. Alternatively, if the Company or the Trustee so deter mines, the Company in exchange for the Security shall issue and the Trustee shall authenticate a new Security that reflects the changed terms. Failure to make the appropriate notation or to issue a new Security shall not affect the validity of such amendment. SECTION 8.6 Trustee To Sign Amendments. The Trustee shall sign any supplemental indenture which sets forth an amendment or supplement authorized pursuant to this Article if the amendment or supplement does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may but need not sign it. In signing such supplemental indenture the Trustee shall be entitled to receive, and (subject to Section 6.1) shall be fully protected in relying upon, an Officers' Certificate and an Opinion of Counsel stating that such supplemental indenture is authorized or permitted by this Indenture and, with respect to an amendment or supplement pursuant to Section 8.2, evidence of the consents of Holders required in connec tion therewith. SECTION 8.7 Fixing of Record Dates. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to take any action under this Indenture by vote or consent. Except as provided herein, such record date shall be the later of 30 days prior to the first solicitation of such consent or vote or the date of the most recent list of Securityholders furnished to the Trustee pursuant to Section 2.5 prior to such solicitation. If a record date is fixed, those Persons who were Securityholders at such record date (or their duly designated proxies), and only those Persons, shall be entitled to take such action by vote or consent or to revoke any vote or consent previously given, whether or not such Persons continue to be Holders after such record date; provided, however, that unless such vote or consent is obtained from the Holders (or their duly designated proxies) of the requisite principal amount of outstanding Securities prior to the date which is the 120th day after such record date, any such vote or consent previously given shall automatically and without further action by any Holder be canceled and of no further effect. ARTICLE IX REDEMPTION SECTION 9.1 Notices to Trustee. If the Company elects to redeem Securities pursuant to paragraph 5 of the Securities it shall notify the Trustee of the redemption date and the princi pal amount (not including any premium in respect thereof) of Securities to be redeemed and the paragraph of the Securities pursuant to which the redemption will occur. The Company shall give the notices provided for in this Section at least 40 days before the redemption date (unless a shorter period shall be satisfac tory to the Trustee). Such notice shall be accompanied by an Officers' Certificate to the effect that such redemption will comply with the conditions herein. If fewer than all the Securities are to be redeemed, the record date relating to such redemption shall be selected by the Company and given to the Trustee, which record date shall be not less than 15 days after the date of notice to the Trustee. SECTION 9.2 Selection of Securities To Be Redeemed. If fewer than all the Securities are to be redeemed, the Trustee shall select the Securities to be redeemed pro rata or by lot or by any other method that complies with applicable legal and securities exchange requirements, if any, and that the Trustee considers, in its sole discretion, fair and appropriate and in accordance with methods generally used at the time of selection by fiduciaries in similar circumstances. The Trustee shall make the selection not more than 75 days before the redemption date from outstanding Securities not previously called for redemption. The Trustee may select for redemption por tions of the principal of Securities that have denominations larger than $1,000. Securities and portions of them selected by the Trustee shall be in amounts of $1,000 or whole multiples of $1,000. Provisions of this Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption. SECTION 9.3 Notice of Redemption. At least 30 days but not more than 60 days before a redemption date, the Company shall mail a notice of redemption to each Holder whose Securities are to be redeemed at the address set forth for such Holder on the register referred to in Section 2.3. The notice shall identify the Securities to be redeemed and shall state: (a) the redemption date; (b) the redemption price; (c) the name and address of the Paying Agent; (d) that Securities called for redemption must be surrendered to the Paying Agent to collect the redemption price; (e) if fewer than all the outstanding Securities are to be redeemed, the identification and principal amounts of the particular Securities to be redeemed; (f) that, unless the Company defaults in making the re demption payment, interest on Securities called for redemption ceases to accrue on and after the redemption date; and (g) 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 Securities. At the Company's written request, made at least 45 days before a redemption date, unless a shorter period shall be satisfactory to the Trustee, the Trustee shall give the notice of redemption provided for in this Section in the Company's name and at its expense. SECTION 9.4 Effect of Notice of Redemption. Once notice of redemption is mailed, Securities called for redemp tion become due and payable on the redemption date at the redemption price. Upon surrender to the Paying Agent, such Securities shall be paid at the re demption price stated in the notice, plus accrued and unpaid interest to the redemption date. SECTION 9.5 Deposit of Redemption Price. Prior to 11:00 a.m., eastern standard time, the redemption date, the Company shall deposit with the Paying Agent (or, if the Company or a Subsidiary is the Paying Agent, shall segregate and hold in trust) money sufficient to pay the redemption price of and accrued and unpaid interest on all Securities to be redeemed on that date other than Securities or portions of Securities called for redemption which have been delivered by the Company to the Trustee for cancel lation. SECTION 9.6 Securities Redeemed in Part. Upon surrender of a Security that is redeemed in part, the Compa ny shall execute and the Trustee shall authenticate for the Holder (at the Company's expense) a new Security equal in principal amount to the unredeemed portion of the Security surrendered. ARTICLE X MISCELLANEOUS SECTION 10.1 Trust Indenture Act Controls. If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by any of TIA Secs 310 to 317, inclusive, through operation of TIA Sec 318(c), such imposed duties shall control. SECTION 10.2 Notices. Any notice or communication shall be in writing and delivered in person, or mailed by first-class mail (certified, return receipt requested), ad dressed as follows: if to the Company: Calpine Corporation 50 West San Fernando Street San Jose, California 95113 Attention: Corporate Secretary if to the Trustee: The Bank of New York 101 Barclay Street, Floor 21 West New York, New York 10271 Attention: Corporate Trust Administration The Company or the Trustee by notice to the others may designate additional or different addresses for subsequent notices or communications. Any notice to the Trustee under this Indenture shall be deemed given only when received by the Trustee at the address specified in this Section 10.2. Any notice or communication to a Securityholder shall be mailed by first-class mail to the Securityholder's address shown on the register kept by the Registrar. Failure to mail a notice or communication to a Securityholder or any defect in it shall not affect its sufficiency with respect to other Securityholders. 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 Securityholders, it shall mail a copy to the Trustee and each Agent at the same time. SECTION 10.3 Communication by Holders with Other Holders. Securityholders may communicate pursuant to TIA Sec 312(b) with other Securityholders with respect to their rights under this Indenture or the Securities. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA Sec 312(c). SECTION 10.4 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, if requested by the Trustee, furnish to the Trustee: (a) an Officers' Certificate in form and substance reason ably satisfactory to the Trustee stating that, in the opinion of the signers, all conditions precedent (including any covenants compliance with which constitutes a condition precedent), if any, provided for in this Indenture relating to the proposed action have been complied with; and (b) an Opinion of Counsel in form and substance reason ably satisfactory to the Trustee stating that, in the opinion of such counsel (which may rely upon an Officers' Certificate as to factual matters), all such conditions precedent have been complied with. SECTION 10.5 Statements Required in Certificate or Opinion. Each Officers' Certificate or Opinion of Counsel with respect to compliance with a condition or covenant provided for in this Indenture other than certificates provided pursuant to Section 3.9 shall include: (a) a statement that the Person making such certificate or opinion has read such covenant or condition; (b) 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; (c) 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 complied with; and (d) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been complied with. SECTION 10.6 Rules by Trustee and Agents. The Trustee may make reasonable rules for action by or a meeting of Securityholders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions. SECTION 10.7 Legal Holidays. A "Legal Holiday" is a Saturday, a Sunday or a day on which banking institutions are not required to be open in the State of New York or the State(s) in which the offices of the Trustee and the Paying Agent are located. If a payment date is a Legal Holiday, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. If a regular record date is a Legal Holiday, the regular record date shall not be affected. SECTION 10.8 Successors; No Recourse Against Others. (a) All agreements of the Company in this Indenture and the Securities shall bind its successor. All agreements of the Trustee in this Inden ture shall bind its successor. (b) All liability of the Company described in the Securities insofar as it relates to any director, officer, employee or stockholder, as such, of the Company is waived and released by each Securityholder. SECTION 10.9 Duplicate Originals. The parties may sign any number of copies of this Indenture. One signed copy is enough to prove this Indenture. SECTION 10.10 Other Provisions. The first certificate pursuant to Section 3.09 shall be for the fiscal year ending on December 31, 1997. The reporting date for Section 6.6 is July 15 of each year. The first reporting date is July 15, 1998. SECTION 10.11 Governing Law. The laws of the State of New York govern this Indenture and the Securities, without regard to the conflicts of laws rules thereof. 0173469.05-01S6a 8 SIGNATURES CALPINE CORPORATION By Name: Title: THE BANK OF NEW YORK, as Trustee By Name: Title: Dated: July 8, 1997 9 EXHIBIT A (Form of Face of Initial Security) [UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY (AS DEFINED BELOW) OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO., OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTA TIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS SECURITY SHALL BE LIMITED TO TRANS FERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 2.8 OF THE INDENTURE (AS DEFINED BELOW).] THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD 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 ACQUISI TION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURI TIES ACT) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULA TION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT, WITHIN TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUANCE OF THIS SECURITY OR THE LAST DATE ON WHICH THIS SECURITY WAS HELD BY AN AFFILIATE OF THE COMPANY, RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLI ANCE WITH RULE 904 UNDER THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (E) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEG END. IN CONNECTION WITH ANY TRANSFER OF THIS SECURITY WITHIN TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUANCE OF THIS SECURITY OR THE LAST DATE ON WHICH THIS SECURITY WAS HELD BY AN AFFILIATE OF THE COMPANY, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH HEREIN RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS SECURITY TO THE TRUSTEE. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS SECURITY IN VIOLATION OF THE FOREGOING RESTRICTIONS. - -------- This legend should only be added if the Security is issued as a Global Note. A-1 CALPINE CORPORATION 8 3/4% Senior Note Due 2007 No. S-1 $200,000,000 CUSIP: 131347AE6 ISIN: US131347AE66 Calpine Corporation, a Delaware corporation, promises to pay to Cede & Co., or registered assigns, the principal sum of Two Hundred Million Dollars on July 15, 2007. Interest Payment Dates: January 15 and July 15 Record Dates: January 1 and July 1 Additional provisions of this Security are set forth on the reverse hereof. IN WITNESS WHEREOF, the Company has caused this Security to be signed manually or by facsimile by its duly authorized officers. Date: CALPINE CORPORATION By Name: Title: By Name: Title: TRUSTEE'S CERTIFICATE OF AUTHENTICATION: The Bank of New York, as Trustee, certifies that this is one of the Securities referred to in the Indenture. By: _________________________ Dated: ______________________ Authorized Signature (Form of Reverse of Initial Security) Calpine Corporation 8 3/4% Senior Note Due 2007 (1) Interest. Calpine Corporation, a Delaware corporation (such corpora tion, and its successors and assigns under the Indenture referred to below, being herein called the "Company"), promises to pay interest on the principal amount of this Security at 8 3/4% per annum (subject to adjustment as provided below). The Company will pay interest semiannually on January 15 and July 15 of each year. Interest on the Securities will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from July 8, 1997. Interest will be computed on the basis of a 360-day year consisting of twelve 30-day months. If an exchange offer registered under the Securities Act (as defined in the Indenture) is not consummated, or a registration statement under the Securities Act with respect to resales of the Securities is not declared effective by the SEC (as defined in the Indenture), by the 180th calendar day following the initial sale of the Securities, in accordance with the terms of a Registration Rights Agreement dated July 1, 1997 by and among the Company, Credit Suisse First Boston Corporation, Morgan Stanley & Co. Incorporated, Salomon Brothers Inc and Scotia Capital Markets (USA) Inc., BancAmerica Securities, Inc. and CIBC Wood Gundy Securities Corp. interest due per annum on the Securities shall be permanently increased by one-half of one percent, com mencing as of January 5, 1998 (the 181st calendar day following the initial sale of the Securities). The holder of this Security is entitled to the benefits of such Registration Rights Agreement. (2) Method of Payment. The Company will pay interest on the Securities (except defaulted interest) to the persons who are registered Holders of Securities at the close of business on the record date next preceding the interest payment date even though Securities are canceled after the record date and on or before the interest payment date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company will pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. However, the Company may pay principal and interest by check payable in such money. It may mail an interest check to a Holder's registered address. (3) Paying Agent, Registrar. Initially, The Bank of New York, a New York banking corporation (the "Trustee"), will act as Paying Agent and Registrar. The Company may change any Paying Agent, Registrar or co-registrar without notice. The Company may act as Paying Agent, Registrar or co-registrar. (4) Indenture. The Company issued the Securities under an Indenture dated as of July 8, 1997 (the "Indenture") between the Company and the Trustee. The Securities are unsecured general obligations of the Company limited to $275,000,000 in aggregate principal amount. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code Secs 77aaa-77bbbb) (the "TIA"). Capitalized terms used herein but not defined herein are used as defined in the Indenture. The Securities are subject to all such terms, and Securityholders are referred to the Indenture and the TIA for a statement of such terms. (5) Optional Redemption. Except as set forth in the following paragraph, the Company may not redeem the Securities prior to July 15, 2002. On and after such date, the Company may redeem the Securities at any time as a whole, or from time to time in part, at the following redemption prices (expressed in percentages of principal amount), plus accrued interest to the redemption date, if redeemed during the 12-month period beginning July 15, Year % 2002 . . . . . . . . . . 104.3750% 2003 . . . . . . . . . . 102.1875% 2004 and thereafter . . 100.000% The Company may redeem up to $70,000,000 principal amount of Securi ties with the proceeds of one or more Public Equity Offerings following which there is a Public Market, at any time in whole or from time to time in part, at a price (expressed as a percentage of principal amount), plus accrued interest to the redemption date, of 108.75% if redeemed at any time prior to July 15, 2000. (6) 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 of Securi ties to be redeemed at the address set forth for such Holder on the register referred to in Section 2.3 of the Indenture. Unless the Company shall default in payment of the re demption price plus accrued interest, on and after the redemption date interest ceases to accrue on such Securities or portions of them called for redemption. Securities in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000. (7) Denominations; Transfer; Exchange. The Securities are in registered form without coupons in denominations of $1,000 and any integral multiple thereof. The transfer of Securities may be registered and Securities may be exchanged as provided in the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not exchange or register the transfer of any Security or portion of a Security selected for redemption (except, in the case of a Security to be redeemed in part, the portion thereof not to be redeemed) or any Securities for a period of 15 days before a selection of Securities to be redeemed, or 15 days before an interest payment date. (8) Put Provisions. Upon a Change of Control Triggering Event, any Holder of Securities will have the right to cause the Company to repurchase all or any part of the Securities of such Holder at a repurchase price equal to 101% of the principal amount of the Securities to be repurchased plus accrued interest to the date of repurchase as provided in, and subject to the terms of, the Indenture. (9) Defeasance. Subject to certain conditions, the Company at any time may terminate some or all of its obligations under the Securities and the Indenture if the Company deposits with the Trustee money and/or U.S. Government Obligations for the payment of principal and interest on the Securities to redemption or maturity, as the case may be. (10) Persons Deemed Owners. The registered Holder of a Security may be treated as its owner for all purposes, except that interest (other than defaulted interest) will be paid to the person that was the registered Holder on the relevant record date for such payment of interest. (11) Amendments and Waivers. Subject to certain exceptions, (i) the Indenture or the Securities may be amended or supplemented with the consent of the Holders of a majority in principal amount of the Securities; and (ii) any existing default may be waived with the consent of the Holders of a majority in principal amount of the Securities. Without the consent of any Securityholder, the Indenture or the Securities may be amended or supplemented to cure any ambiguity, omission, defect or incon sistency, to provide for assumption of Company obligations to Securityholders or to provide for uncertificated Securities in addition to or in place of certificated Securities, to provide for guarantees with respect to, or security for, the Securities, or to comply with the TIA or to add additional covenants or surrender Company rights, or to make any change that does not adversely affect the rights of any Securityholder. (12) Remedies. If an Event of Default occurs and is continuing, the Trustee or Holders of at least 25% in principal amount of the Securities may declare all the Securities to be due and payable immediately. Securityholders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may require an indemnity before it enforces the Indenture or the Securities. Subject to certain limita tions, Holders of a majority in principal amount of the Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Securityholders notice of any continuing default (except a Default in payment of principal or interest) if it determines that withholding notice is in their interests. The Company must furnish an annual compliance certificate to the Trustee. (13) Trustee Dealings with Company. Subject to the provisions of the TIA, the Trustee under the Indenture, 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 Trustee. The Trustee will initially be The Bank of New York. (14) No Recourse Against Others. A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each Securityholder by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities. (15) Authentication. This Security shall not be valid until authenticated by the manual signature of an authorized signatory of the Trustee or an authenticating agent. (16) Abbreviations. Customary abbreviations may be used in the name of a Securityholder 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). Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures the Company has caused CUSIP numbers to be printed on the Securities and has directed the Trustee to use CUSIP numbers in notices of redemption as a convenience to Securityholders. No representation is made as to the accuracy of such numbers either as printed on the Securities or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. The Company will furnish to any Securityholder upon written request and without charge a copy of the Indenture, which has in it the text of this Security in larger type. Requests may be made to: Secretary, Calpine Corporation, 50 West San Fernando Street, San Jose, California 95113. A-2 ASSIGNMENT FORM To assign this Security, fill in the form below: I or we assign and transfer this Security to (Insert assignee's soc. sec or tax I.D. no.) (Print or type assignee's name, address and zip code) and irrevocably appoint agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. Dated: Signed: (Sign exactly as your name appears on the other side of this Security) Signature Guarantee: Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the 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 Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. MANNER OF TRANSFER (Check one) Transfer to Calpine Corporation o Transfer to Qualified Institutional Buyer o Transfer outside the United States in compliance with Rule 904 under the Securities Act of 1993 o OPTION OF HOLDER TO ELECT PURCHASE FORM If you wish to elect to have this Security purchased by the Company pursuant to Section 3.8 or 3.12 of the Indenture, check this box: |_| If you wish to elect to have only part of this Security purchased by the Company pursuant to Section 3.8 or 3.12 of the Indenture, state the amount: $ *As set forth in the Indenture, any purchase pursuant to Section 3.12 is subject to proration in the event the offer is oversubscribed. Dated: Signed: (Sign exactly as your name appears on the other side of this Security) Signature Guarantee: Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the 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 Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. A-3 EXHIBIT B (Form of Face of Exchange Security) [UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY (AS DEFINED BELOW) OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO., OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 2.8 OF THE INDENTURE (AS DEFINED BELOW).] - -------- This legend should only be added if the Security is issued as a Global Note. B-1 CALPINE CORPORATION 8 3/4% Senior Note Due 2007 No. $200,000,000 CUSIP: 131347AE6 ISIN: US131347AE66 Calpine Corporation, a Delaware corporation, promises to pay to Cede & Co., or registered assigns, the principal sum of Two Hundred Million Dollars on July 15, 2007. Interest Payment Dates: January 15 and July 15 Record Dates: January 1 and July 1 Additional provisions of this Security are set forth on the reverse hereof. IN WITNESS WHEREOF, the Company has caused this Security to be signed manually or by facsimile by its duly authorized officers. Date: CALPINE CORPORATION By Name: Title: By Name: Title: TRUSTEE'S CERTIFICATE OF AUTHENTICATION: The Bank of New York, as Trustee, certifies that this is one of the Securities referred to in the Indenture. By: _________________________ Dated: ____________________ Authorized Signature B-2 (Form of Back of Exchange Security) Calpine Corporation 8 3/4 Senior Note Due 2007 (1) Interest. Calpine Corporation, a California corporation (such corpora tion, and its successors and assigns under the Indenture referred to below, being herein called the "Company"), promises to pay interest on the principal amount of this Security at 8 3/4 per annum. The Company will pay interest semiannually on January 15 and July 15 of each year. Interest on the Securities will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from July 8, 1997. Interest will be computed on the basis of a 360-day year consisting of twelve 30-day months. (2) Method of Payment. The Company will pay interest on the Securities (except defaulted interest) to the persons who are registered Holders of Securities at the close of business on the record date next preceding the interest payment date even though Securities are canceled after the record date and on or before the interest payment date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company will pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. However, the Company may pay principal and interest by check payable in such money. It may mail an interest check to a Holder's registered address. (3) Paying Agent, Registrar. Initially, The Bank of New York, a New York banking corporation (the "Trustee"), will act as Paying Agent and Registrar. The Company may change any Paying Agent, Registrar or co-registrar without notice. The Company may act as Paying Agent, Registrar or co-registrar. (4) Indenture. The Company issued the Securities under an Indenture dated as of July 8, 1997 (the "Indenture") between the Company and the Trustee. The Securities are unsecured general obligations of the Company limited to $275,000,000 in aggregate principal amount. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code Secs 77aaa-77bbbb) (the "TIA"). Capitalized terms used herein but not defined herein are used as defined in the Indenture. The Securities are subject to all such terms, and Securityholders are referred to the Indenture and the TIA for a statement of such terms. (5) Optional Redemption. Except as set forth in the following paragraph, the Company may not redeem the Securities prior to July 15, 2002. On and after such date, the Company may redeem the Securities at any time as a whole, or from time to time in part, at the following redemption prices (expressed in percentages of principal amount), plus accrued interest to the redemption date, if redeemed during the 12-month period beginning July 15, Year % 2002 . . . . . . . . . . 104.3750% 2003 . . . . . . . . . . 102.1875% 2004, and thereafter . . 100.00% The Company may redeem up to $70,000,000 principal amount of Securities with the proceeds of one or more Public Equity Offerings at any time in whole or from time to time in part, at a price (expressed as a percentage of principal amount), plus accrued interest to the redemption date, of 108.75% if redeemed at any time prior to July 15, 2000. (6) 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 of Securities to be redeemed at the address set forth for such Holder on the register referred to in Section 2.3 of the Indenture. Unless the Company shall default in payment of the redemption price plus accrued interest, on and after the redemption date interest ceases to accrue on such Securities or portions of them called for redemption. Securities in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000. (7) Denominations; Transfer; Exchange. The Securities are in registered form without coupons in denominations of $1,000 and any integral multiple thereof. The transfer of Securities may be registered and Securities may be exchanged as provided in the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not exchange or register the transfer of any Security or portion of a Security selected for redemption (except, in the case of a Security to be redeemed in part, the portion thereof not to be redeemed) or any Securities for a period of 15 days before a selection of Securities to be redeemed, or 15 days before an interest payment date. (8) Put Provisions. Upon a Change of Control Triggering Event, any Holder of Securities will have the right to cause the Company to repurchase all or any part of the Securities of such Holder at a repurchase price equal to 101% of the principal amount of the Securities to be repurchased plus accrued interest to the date of repurchase as provided in, and subject to the terms of, the Indenture. (9) Defeasance. Subject to certain conditions, the Company at any time may terminate some or all of its obligations under the Securities and the Indenture if the Company deposits with the Trustee money and/or U.S. Government Obligations for the payment of principal and interest on the Securities to redemption or maturity, as the case may be. (10) Persons Deemed Owners. The registered Holder of a Security may be treated as its owner for all purposes, except that interest (other than defaulted interest) will be paid to the person that was the registered Holder on the relevant record date for such payment of interest. (11) Amendments and Waivers. Subject to certain exceptions, (i) the Indenture or the Securities may be amended or supplemented with the consent of the Holders of a majority in principal amount of the Securities; and (ii) any existing default may be waived with the consent of the Holders of a majority in principal amount of the Securities. Without the consent of any Securityholder, the Indenture or the Securities may be amended or supplemented to cure any ambiguity, omission, defect or inconsistency, to provide for assumption of Company obligations to Securityholders or to provide for uncertificated Securities in addition to or in place of certificated Securities, to provide for guarantees with respect to, or security for, the Securities, or to comply with the TIA or to add additional covenants or surrender Company rights, or to make any change that does not adversely affect the rights of any Securityholder. (12) Remedies. If an Event of Default occurs and is continuing, the Trustee or Holders of at least 25% in principal amount of the Securities may declare all the Securi ties to be due and payable immediately. Securityholders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may require an indemnity before it enforces the Indenture or the Securities. Subject to certain limitations, Holders of a majority in principal amount of the Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Securityholders notice of any continuing default (except a Default in payment of principal or interest) if it determines that withholding notice is in their interests. The Company must furnish an annual compliance certificate to the Trustee. (13) Trustee Dealings with Company. Subject to the provisions of the TIA, the Trustee under the Indenture, 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 Trustee. The Trustee will initially be The Bank of New York. (14) No Recourse Against Others. A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each Securityholder by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities. (15) Authentication. This Security shall not be valid until authenticated by the manual signature of an authorized signatory of the Trustee or an authenticating agent. (16) Abbreviations. Customary abbreviations may be used in the name of a Securityholder 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). Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures the Company has caused CUSIP numbers to be printed on the Securities and has directed the Trustee to use CUSIP numbers in notices of redemption as a convenience to Securityholders. No representation is made as to the accuracy of such numbers either as printed on the Securities or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. The Company will furnish to any Securityholder upon written request and without charge a copy of the Indenture, which has in it the text of this Security in larger type. Requests may be made to: Secretary, Calpine Corporation, 50 West San Fernando Street, San Jose, California 95113. - -------- 9 1/4% if the exchange offer is not consummated before January 5, 1998. B-3 ASSIGNMENT FORM To assign this Security, fill in the form below: I or we assign and transfer this Security to (Insert assignee's soc. sec or tax I.D. no.) (Print or type assignee's name, address and zip code) and irrevocably appoint agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. Dated: Signed: (Sign exactly as your name appears on the other side of this Security) Signature Guarantee: Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the 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 Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. OPTION OF HOLDER TO ELECT PURCHASE FORM If you wish to elect to have this Security purchased by the Company pursuant to Section 3.8 or 3.12 of the Indenture, check this box: |_| If you wish to elect to have only part of this Security purchased by the Company pursuant to Section 3.8 or 3.12 of the Indenture, state the amount: $ *As set forth in the Indenture, any purchase pursuant to Section 3.12 is subject to proration in the event the offer is oversubscribed. Dated: Signed: (Sign exactly as your name appears on the other side of this Security) Signature Guarantee: Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the 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 Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. B-4 EXHIBIT C Form of Certificate to be Delivered In Connection with Transfer Pursuant to Rule 144A The Bank of New York, as Depositary 101 Barclay Street, Floor 21 West New York, NY 10286 Attention: Corporate Trust Trustee Administration Re: Calpine Corporation (the "Company") 8 3/4% Senior Notes due 2007 (the "Securities") Dear Sirs: In connection with our proposed sale of $________ aggregate principal amount of the Securities, we confirm that such sale has been effected pursuant to and in accordance with a transaction meeting the requirements of Rule 144A under the Securities Act of 1933, as amended (the "Act"). We hereby certify that we are and the transferee is a "qualified institutional buyer" (as defined in Rule 144A under the Act) and that we are acting for our own account or for the account of one or more qualified institutional buyers, and, accordingly, we agree (or if we were acting for the account of one or more qualified institutional buyers, each such qualified institutional buyer has confirmed to us that it agrees) that we or the transferee will not offer, sell, pledge or otherwise transfer the Notes except (A) to a Person who we reasonably believe (or the transferee and anyone acting on its behalf reasonably believes) is a qualified institutional buyer in a transaction meeting the requirements of Rule 144A, or (B) pursuant to the exemption from registration under the Act provided by Rule 144 (if available), in each case in accordance with any applicable securities laws of the states of the United States. If we are a broker-dealer, we further certify that we are acting for the account of our customer and that our customer has confirmed the accuracy of the representations contained herein that are applicable to it (including the representations with respect to beneficial ownership). This certificate and the statements contained herein are made for the benefit of the Company and the Initial Purchasers. Terms used in this certificate and not otherwise defined in the Indenture have the meanings set forth in Regulation S under the Securities Act. Dated: [Insert Name of Transferor] By: Name: Title: C-1 EXHIBIT D Form of Certificate to Be Delivered in Connection with Transfers Pursuant to Regulation S -----------, ---- The Bank of New York 101 Barclay Street New York, New York 10026 Attention: Corporate Trust Department Calpine Corporation 50 West San Fernando Street San Jose, California 95113 Attention: Corporate Secretary Re: Calpine Corporation (the "Company") 8 3/4% Senior Notes Due 2007 (the "Securities") Dear Sirs: In connection with our proposed sale of $___________ aggregate principal amount of the Securities, we confirm that such sale has been effected pursuant to and in accordance with Regulation S under the Securities Act of 1933, as amended, and, accordingly, we represent that: (1) the offer of the Securities was not made to a person in the United States; (2) at the time the buy order was originated, the transferee was outside the United States or we and any person acting on our behalf reasonably believed that the transferee was outside the United States; (3) no directed selling efforts have been made by us in the United States in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S, as applicable; and (4) the transaction is not part of a plan or scheme to evade the registration requirements of the U.S. Securities Act of 1933. 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. Terms used in this certificate have the meanings set forth in Regulation S. Very truly yours, [Name of Transferor] By:_______________________ Authorized Signature D-1 CALPINE CORPORATION and THE BANK OF NEW YORK, Trustee Indenture Dated as of July 8, 1997 $275,000,000 8 3/4% Senior Notes Due 2007 D-2 ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE................................... 1 SECTION 1.1 Definitions........................................... 1 SECTION 1.2 Other Definitions..................................... 23 SECTION 1.3 Incorporation by Reference of Trust Indenture Act..... 23 SECTION 1.4 Rules of Construction................................. 24 ARTICLE II THE SECURITIES............................................................... 25 SECTION 2.1 Form and Dating........................................ 25 SECTION 2.2 Execution and Authentication........................... 27 SECTION 2.3 Registrar and Paying Agent............................. 28 SECTION 2.4 Paying Agent To Hold Money in Trust.................... 29 SECTION 2.5 Securityholder Lists................................... 30 SECTION 2.6 Transfer and Exchange.................................. 30 SECTION 2.7 Book-Entry Provisions for Global Note.................. 31 SECTION 2.8 Special Transfer Provisions............................ 32 SECTION 2.9 Replacement Securities................................. 34 SECTION 2.10 Outstanding Securities................................ 34 SECTION 2.11 Determination of Holders' Action...................... 35 SECTION 2.12 Temporary Securities.................................. 35 SECTION 2.13 Cancellation.......................................... 35 SECTION 2.14 Defaulted Interest.................................... 36 ARTICLE III COVENANTS.................................................................... 36 SECTION 3.1 Payment of Securities.................................. 36 SECTION 3.2 Maintenance of Office or Agency........................ 37 SECTION 3.3 Limitation on Restricted Payments...................... 37 SECTION 3.4 Limitation on Incurrence of Indebtedness............... 41 SECTION 3.5 Limitation on Payment Restrictions Affecting Subsidiaries........................................... 43 SECTION 3.6 Limitation on Sale/Leaseback Transactions.............. 44 SECTION 3.7 Limitation on Liens.................................... 45 SECTION 3.8 Change of Control...................................... 47 SECTION 3.9 Compliance Certificate................................. 49 SECTION 3.10 SEC Reports........................................... 50 SECTION 3.11 Transactions with Affiliates.......................... 50 SECTION 3.12 Sales of Assets....................................... 51 SECTION 3.13 Corporate Existence................................... 55 SECTION 3.14 Payment of Taxes and Other Claims..................... 56 SECTION 3.15 Notice of Defaults and Other Events................... 56 SECTION 3.16 Maintenance of Properties and Insurance............... 57 SECTION 3.17 Limitation on Issuance of Capital Stock and Incurrence of Indebtedness of Restricted Subsidiaries... 57 SECTION 3.18 Limitation on Changes in the Nature of the Business... 58 SECTION 3.19 Limitation on Subsidiary Investments.................. 58 ARTICLE IV CONSOLIDATION, MERGER AND SALE............................................... 59 SECTION 4.1 Merger and Consolidation of Company. .................. 59 SECTION 4.2 Successor Substituted.................................. 61 ARTICLE V DEFAULTS AND REMEDIES........................................................ 62 SECTION 5.1 Events of Default...................................... 62 SECTION 5.2 Acceleration........................................... 64 SECTION 5.3 Other Remedies......................................... 65 SECTION 5.4 Waiver of Past Defaults................................ 65 SECTION 5.5 Control by Majority.................................... 65 SECTION 5.6 Limitation on Suits.................................... 66 SECTION 5.7 Rights of Holders To Receive Payment................... 67 SECTION 5.8 Collection Suit by Trustee............................. 67 SECTION 5.9 Trustee May File Proofs of Claim....................... 67 SECTION 5.10 Priorities............................................ 68 SECTION 5.11 Undertaking for Costs................................. 68 SECTION 5.12 Waiver of Stay or Extension Laws...................... 68 ARTICLE VI TRUSTEE...................................................................... 69 SECTION 6.1 Duties of Trustee...................................... 69 SECTION 6.2 Rights of Trustee...................................... 70 SECTION 6.3 Individual Rights of Trustee........................... 71 SECTION 6.4 Trustee's Disclaimer................................... 71 SECTION 6.5 Notice of Defaults..................................... 71 SECTION 6.6 Reports by Trustee to Holders.......................... 72 SECTION 6.7 Compensation and Indemnity............................. 72 SECTION 6.8 Replacement of Trustee................................. 73 SECTION 6.9 Successor Trustee by Merger, etc....................... 74 SECTION 6.10 Eligibility; Disqualification......................... 74 SECTION 6.11 Preferential Collection of Claims Against Company. .. 74 ARTICLE VII SATISFACTION AND DISCHARGE OF INDENTURE...................................... 75 SECTION 7.1 Discharge of Liability on Securities; Defeasance....... 75 SECTION 7.2 Termination of Company's Obligations................... 75 SECTION 7.3 Defeasance and Discharge of Indenture.................. 76 SECTION 7.4 Defeasance of Certain Obligations...................... 79 SECTION 7.5 Application of Trust Money............................. 81 SECTION 7.6 Repayment to Company................................... 81 SECTION 7.7 Reinstatement.......................................... 82 ARTICLE VIII AMENDMENTS AND SUPPLEMENTS................................................... 82 SECTION 8.1 Without Consent of Holders............................. 82 SECTION 8.2 With Consent of Holders................................ 83 SECTION 8.3 Compliance with Trust Indenture Act.................... 84 SECTION 8.4 Revocation and Effect of Consents...................... 84 SECTION 8.5 Notation on or Exchange of Securities.................. 85 SECTION 8.6 Trustee To Sign Amendments............................. 85 SECTION 8.7 Fixing of Record Dates................................. 85 ARTICLE IX REDEMPTION................................................................... 86 SECTION 9.1 Notices to Trustee..................................... 86 SECTION 9.2 Selection of Securities To Be Redeemed................. 86 SECTION 9.3 Notice of Redemption................................... 87 SECTION 9.4 Effect of Notice of Redemption......................... 88 SECTION 9.5 Deposit of Redemption Price............................ 88 SECTION 9.6 Securities Redeemed in Part............................ 88 ARTICLE X MISCELLANEOUS................................................................ 88 SECTION 10.1 Trust Indenture Act Controls.......................... 88 SECTION 10.2 Notices............................................... 89 SECTION 10.3 Communication by Holders with Other Holders........... 90 SECTION 10.4 Certificate and Opinion as to Conditions Precedent.... 90 SECTION 10.5 Statements Required in Certificate or Opinion......... 90 SECTION 10.6 Rules by Trustee and Agents........................... 91 SECTION 10.7 Legal Holidays........................................ 91 SECTION 10.8 Successors; No Recourse Against Others................ 91 SECTION 10.9 Duplicate Originals................................... 91 SECTION 10.10 Other Provisions..................................... 92 SECTION 10.11 Governing Law........................................ 92 SIGNATURES................................................................... 93 EXHIBIT A....................................................................A-1 EXHIBIT B....................................................................B-1 EXHIBIT C....................................................................C-1 EXHIBIT D....................................................................D-1 i EX-4.4 5 REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT Dated as of July 1, 1997 by and between CALPINE CORPORATION and CREDIT SUISSE FIRST BOSTON CORPORATION MORGAN STANLEY & CO. INCORPORATED SALOMON BROTHERS INC SCOTIA CAPITAL MARKETS (USA) INC. BANCAMERICA SECURITIES, INC. CIBC WOOD GUNDY SECURITIES CORP. ------------------------------- 8 3/4% Senior Notes Due 2007 1 REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (the "Agreement") is made and entered into as of July 1, 1997, by and among Calpine Corporation, a Delaware corporation (the "Company"), and Credit Suisse First Boston Corporation, Morgan Stanley & Co. Incorporated, Salomon Brothers Inc, Scotia Capital Markets (USA) Inc., BancAmerica Securities, Inc. and CIBC Wood Gundy Securi ties Corp. (the "Purchasers"). This Agreement is made pursuant to the Purch ase Agreement, dated of even date herewith (the "Purch ase Agreement"), between the Company and the Purchasers, which provides for the sale by the Company to the Pur chasers of an aggregate of $200,000,000 principal amount of the Company's 8 3/4% Senior Notes Due 2007 (the "Senior Notes"). In order to induce the Purchasers to enter into the Purchase Agreement, the Company has agreed to provide the registration rights set forth in this Agree ment. The execution of this Agreement is a condition to the Closing under the Purchase Agreement. The parties hereby agree as follows: 1. Definitions Capitalized terms used herein without defini tion shall have their respective meanings set forth in the Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings: Advice: See Section 4(o). Closing Date: July 8, 1997, or such other date as may be agreed upon for the sale and purchase of the Senior Notes pursuant to the Purchase Agreement. Company: Calpine Corporation, a Delaware corporation. Exchange Act: The Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder. Exchange Offer: The exchange offer by the Company of Exchange Notes for Registrable Securities pursuant to Section 3(d) hereof. Exchange Offer Registration: A registration under the Securities Act effected pursuant to Section 3(d) hereof. Exchange Offer Registration Statement: An ------------------------------------- exchange offer registration statement on Form S-4 or Form S-1 (or, if applicable, on another appropriate form) and all amendments and supplements to such regis tration statement, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference or deemed to be incorporated by reference therein. Exchange Notes: Securities issued by the Company under an indenture containing terms identical to the Senior Notes (except that such Exchange Notes (i) shall have been issued in an Exchange Offer and (ii) shall have an interest rate of 8 3/4% per annum (9 1/4% per annum if such Exchange Offer is not consummated by January 4, 1998), without provision for adjustment as provided in paragraph 1 on the reverse of the Senior Notes), to be offered to holders of Senior Notes in exchange for Senior Notes pursuant to the Exchange Offer. Indenture: The Indenture, dated as of July 8, 1997, between the Company and The Bank of New York, as Trustee, pursuant to which the Senior Notes are being issued, as amended or supplemented from time to time in accordance with the terms thereof. Prospectus: The prospectus included in any Registration Statement (including, without limitation, a prospectus that discloses information previously omitted from a prospectus filed as part of an effective regis tration statement in reliance upon Rule 430A), as amend ed or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by such Registration Statement or of the Exchange Notes, as the case may be, and all other amendments and supplements to the Prospec tus, including post-effective amendments and all materi al incorporated by reference or deemed to be incorporat ed by reference in such Prospectus. Registrable Securities: All Senior Notes which are Restricted Securities. Registration Expenses: See Section 5 hereof. Registration Statement: Any registration statement of the Company which covers any of the Ex change Notes or Registrable Securities pursuant to the provisions of this Agreement, including the Prospectus, amendments and supplements to such registration state ment, including post-effective amendments, all exhibits, and all material incorporated by reference or deemed to be incorporated by reference in such registration state ment. Restricted Securities: Any and all Senior Notes upon original issuance thereof and at all times subsequent thereto until, as to any Senior Note, (i) the sale of such Senior Note has been effectively registered under the Securities Act and such Senior Note has been disposed of in accordance with the Registration State ment relating thereto or (ii) it is distributed to the public pursuant to Rule 144(k) (or any similar provision then in force, but not Rule 144A) under the Securities Act or (iii) an Exchange Offer Registration has been declared effective and such Senior Note has been ex changed for an Exchange Note by a person who is not then deemed to be an Underwriter as defined in Section 2(11) of the Securities Act. SEC: The Securities and Exchange Commission. Securities Act: The Securities Act of 1933, as amended, and the rules and regulations promulgated by the SEC thereunder. Shelf Registration: See Section 3 hereof. Special Counsel: Skadden, Arps, Slate, Meagher & Flom LLP, special counsel to the Purchasers or such other special counsel as may be designated by the holders of a majority in aggregate principal amount of Registrable Securities outstanding. TIA: The Trust Indenture Act of 1939, as amended. 2. Securities Subject to this Agreement; Holders (a) The securities entitled to the bene fits of this Agreement are the Registrable Securities. (b) A Person is deemed to be a holder of Registrable Securities whenever such Person beneficially owns Registrable Securities; provided, that only Regis trable Securities of holders who are registered holders of Registrable Securities shall be counted for purposes of calculating any proportion of holders of Registrable Securities entitled to take action or give notice pursu ant to this Agreement. 3. Shelf Registrations; Exchange Offers (a) Shelf Registrations. As promptly as practicable and in no event later than December 1, 1997, the Company shall prepare and file with the SEC a Registration Statement under the Securities Act for an offering to be made on a continuous basis pursuant to Rule 415 (or any similar rule that may be adopted by the SEC) under the Securities Act covering all the Registra ble Securities (the "Shelf Registration"). (b) The Shelf Registration shall be on Form S-1 or another appropriate form permitting regis tration of such Registrable Securities for resale by such holders in the manner or manners designated by them. (c) The Company shall use its best ef forts to cause the Shelf Registration to become effec tive under the Securities Act in accordance with Section 3(a) hereof and shall keep the Shelf Registration con tinuously effective for a period of two years from the Closing Date or such shorter period which will terminate when all Registrable Securities covered by the Shelf Registration are no longer Restricted Securities. The Company shall also supplement or make amendments to any Shelf Registration if required by the rules, regulations or instructions applicable to the registration form used by the Company or if required by the Securities Act or if reasonably requested by holders of a majority of the principal amount of the Registrable Securities then outstanding covered by the Shelf Registration. (d) Exchange Offer. Notwithstanding the provisions of Section 3(a), at the option of the Compa ny, to the extent any applicable law or applicable interpretation of the staff of the SEC would permit holders thereafter to resell Exchange Notes without restriction, the Company may, in lieu of complying with Section 3(a), cause to be filed an Exchange Offer Regis tration Statement covering the offer by the Company to the holders of Senior Notes to exchange all of the Registrable Securities for Exchange Notes, to have such Exchange Offer Registration Statement declared effective by the SEC not later than January 4, 1998 and to have such Registration Statement remain effective until the closing of the Exchange Offer. The Company shall com mence the Exchange Offer promptly after the Exchange Offer Registration Statement has been declared effective by the SEC by mailing the related exchange offer Pro spectus and accompanying documents to each holder of Senior Notes stating, in addition to such other disclo sures required by applicable law: (i) that the Exchange Offer is being made pursuant to this Agreement and that all Registrable Securities validly tendered will be accepted for exchange; (ii) the date of acceptance for exchange (which shall be a period of at least 60 days from the date such notice is mailed) (the "Exchange Date"); (iii) that any Registrable Security not tendered will remain outstanding and continue to accrue interest but, except as set forth in the last paragraph of this Section 3(d), will not re tain any rights under this Agreement; (iv) that holders of Senior Notes electing to have a Registrable Security exchanged pursuant to the Exchange Offer will be required to surrender such Registrable Security, together with the enclosed letters of transmittal, to the insti tution and at the address (located in the Borough of Manhattan, The City of New York) specified in the notice prior to the close of business on the last Exchange Date; and (v) that holders of Senior Notes will be entitled to withdraw their election not later than the close of business on the last Ex change Date, by sending to the institution and at the address (located in the Borough of Manhattan, The City of New York) specified in the notice a telegram, telex, facsimile transmission or letter setting forth the name of such holder, the princi pal amount of Registrable Securities delivered for exchange and a statement that such holder is with 1 drawing its election to have such Senior Notes ex changed. As soon as practicable after the Exchange Date, the Company shall: (i) accept for exchange Registrable Securities or portions thereof tendered and not validly withdrawn pursuant to the Exchange Offer; and (ii) deliver, or cause to be deliv ered, to the Trustee for cancellation all Registra ble Securities or portions thereof so accepted for exchange by the Company and issue, and cause the trustee under the indenture governing the Exchange Notes to promptly authenticate and mail to each holder, a new Exchange Note, as the case may be, equal in principal amount to the principal amount of the Registrable Securities surrendered by such Holder. The Company shall use its best efforts to com plete the Exchange Offer as provided above and shall comply with the applicable requirements of the Securi ties Act, the Exchange Act and other applicable laws in connection with the Exchange Offer. The Exchange Offer shall not be subject to any conditions, other than that the Exchange Offer does not violate applicable law or any applicable interpretation of the staff of the SEC. The Company shall inform the Purchasers of the names and addresses of the holders of Senior Notes to whom the Ex change Offer is made, and the Purchasers shall have the right to contact such holders and otherwise facilitate the tender of Registrable Securities in the Exchange Offer. In connection with the Exchange Registration, the Company will provide a letter to the staff of the SEC that contains statements and representations sub stantially in the form set forth in Mary Kay Cosmetics, Inc. (no-action letter available June 5, 1991), Morqan Stanley & Co. Incorporated (no-action letter available June 5, 1991), Warnaco, Inc. (no-action letter available October 11, 1991), Shearman & Sterling (no-action letter available July 2, 1993), Grupo Financiero InverMexico, S.A. (no-action letter available April 4, 1995) and no- action letters to similar effect. As provided in the Indenture, in the event that neither the Shelf Registration nor the Exchange Offer Registration Statement is declared effective by January 4, 1998, the interest rate on the Senior Notes shall be permanently increased, beginning at such time, by 1/2% per annum. 4. Registration Procedures In connection with the Company's registration obligations pursuant to Section 3 hereof, the Company shall use its best efforts to effect such registrations to permit the consummation of the Exchange Offer or the sale of such Registrable Securities in accordance with the intended method or methods of disposition thereof, and pursuant thereto the Company shall as expeditiously as possible: (a) prepare and file with the SEC, within the time period specified in Section 3, a Regis tration Statement or Registration Statements on any appropriate form under the Securities Act, which form, in the case of a Shelf Registration, shall be available for the sale of the Registrable Securities by the hold ers thereof in accordance with the intended method or methods of distribution thereof, and use its best ef forts to cause each such Registration Statement to become effective and remain effective as provided here in; provided, however, that before filing a Registration Statement or Prospectus or any amendments or supplements thereto (including documents which would be incorporated or deemed to be incorporated therein by reference and amendments to such documents, other than documents required to be filed pursuant to the Exchange Act), the Company shall furnish to the Special Counsel copies of the Registration Statement or Prospectus and all such documents in the form proposed to be filed at least five business days prior thereto and with respect to amend ments or supplements thereof, at least two business days prior thereto, which documents will be subject to the review of the Special Counsel, and the Company shall not file any such Registration Statement or amendment there to or any Prospectus or any supplement thereto (includ ing such documents which, upon filing, would be incorpo rated or deemed to be incorporated by reference therein and amendments to such documents, other than documents required to be filed pursuant to the Exchange Act) to which the Special Counsel shall reasonably object on a timely basis, unless the Company is advised by its counsel that such Registration Statement or amendment thereto or any Prospectus or supplement thereto is required to be filed by applicable law; (b) prepare and file with the SEC such amendments and post-effective amendments to each Regis tration Statement as may be necessary to keep such Registration Statement continuously effective for the applicable period; cause the related Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) under the Securi ties Act; (c) notify the selling holders of Regis trable Securities (except in the cases of clauses (ii) and (iii) hereof) and their Special Counsel promptly, and (if requested by any such person) confirm such notice in writing, (i) when a Prospectus or any Prospec tus supplement or post-effective amendment related to such Registrable Securities has been filed, and, with respect to a Registration Statement or any post-effec tive amendment related to such Registrable Securities, when the same has become effective, (ii) of the receipt of any comments from the SEC, (iii) of any request by the SEC for amendments or supplements to a Registration Statement or related Prospectus or for additional infor mation, (iv) of the issuance by the SEC of any stop order suspending the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose, (v) if at any time the representations and warranties of the Company contained in any agreement contemplated by paragraph (1) below in connection with the sale of Restricted Securities by selling holders thereof cease to be true and correct, (vi) of the re ceipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale or exchange in any jurisdiction of the United States of America or the initiation of any proceeding for such purpose, (vii) of the happening of any event which makes any statement of a material fact made in such Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue or which requires the making of any changes in a Registration Statement or related Prospectus so that such documents will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circum stances under which they were made, not misleading, and (viii) of the Company's determination that a post effective amendment to a Registration Statement would be appropriate; (d) use every reasonable effort to obtain the withdrawal of any order suspending the effec tiveness of a Registration Statement or the lifting of any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale or exchange in any jurisdiction of the United States of America, as promptly as practicable; (e) if reasonably requested by any holder of Registrable Securities covered by a Registra tion Statement, (i) promptly incorporate in a Prospectus supplement or post-effective amendment such information as such holder reasonably requests to be included there in as may be required by applicable law, (ii) make all required filings of such Prospectus supplement or such post-effective amendment as soon as the Company has received notification of the matters to be incorporated in such Prospectus supplement or such post-effective amendment, and (iii) supplement or make amendments to any Registration Statement if reasonably requested by any holder of Registrable Securities covered by such Registration Statement as may be required by applicable law; (f) in the case of a Shelf Registration, furnish to each selling holder of Registrable Securities and the Special Counsel, without charge, at least one conformed copy of the Registration Statement or State ments and any post-effective amendment thereto, includ ing financial statements and schedules, all documents incorporated therein by reference or deemed incorporated therein by reference and all exhibits (including those previously furnished or incorporated by reference), at the earliest practicable time under the circumstances after the filing of such documents with the SEC; (g) in the case of a Shelf Registration, deliver to each selling holder of Registrable Securities and the Special Counsel, without charge, as many copies of the Prospectus or Prospectuses (including each pre liminary prospectus) and any amendment or supplement thereto as such Persons may reasonably request; the Company consents to the use of such Prospectus or any amendment or supplement thereto in accordance with applicable law by each of the selling holders of Regis trable Securities in connection with the offering and sale of the Registrable Securities covered by such Prospectus or any amendment or supplement thereto in accordance with applicable law; (h) prior to any public offering or ex change of Registrable Securities, to use its best ef forts to register or qualify or cooperate with the selling holders of Registrable Securities and their Special Counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale or exchange, as the case may be, under the securities or blue sky laws of such state or local jurisdictions as any seller reasonably requests in writing; keep each such registration or qualification (or exemption therefrom) effective during the period such Registration Statement is required to be kept effective and do any and all other acts or things neces sary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by the applicable Registration Statement; provided, howev er, that the Company will not be required to (A) qualify generally to do business in any jurisdiction where it is not then so qualified, (B) take any action which would subject it to general service of process in any such jurisdiction where it is not then so subject or (C) register or qualify securities prior to the effective date of any Registration Statement under Section 3 hereof; (i) in the case of a Shelf Registration, cooperate with the selling holders of Registrable Secu rities to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold, which certificates shall not bear any restric tive legends; and enable such Registrable Securities to be in such denominations and registered in such names, in all cases consistent with the requirements set forth in the Indenture, as the holders may request; (j) subject to the exceptions contained in (A), (B) and (C) of subsection (h) hereof, cause the Registrable Securities covered by the applicable Regis tration Statement to be registered with or approved by such other federal, state and local governmental regula tory agencies or authorities in the United States as may be necessary to enable the seller or sellers thereof to consummate the disposition of such Registrable Securi ties and cooperate with each seller of Registrable Securities in connection with any filings required to be made with the National Association of Securities Deal ers, Inc.; (k) upon the occurrence of any event contemplated by Section 4(c)(vii) or 4(c)(viii) above, as promptly as practicable thereafter, prepare and file with the SEC a supplement or post-effective amendment to the applicable Registration Statement or a supplement to the related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities being sold thereunder, such Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (l) in the case of a Shelf Registration, enter into such customary agreements and take all such other actions in connection therewith (including those reasonably requested by the holders of a majority of the Registrable Securities being sold) in order to expedite or facilitate the disposition of such Registrable Secu rities including, but not limited to, an underwritten offering and in such connection, (i) to the extent possible, make such representations and warranties to the holders and any underwriters of such Registrable Securities with respect to the business of the Company and its subsidiaries, the Registration Statement, Pro spectus and documents incorporated by reference or deemed incorporated by reference, if any, in each case, in form, substance and scope as are customarily made by issuers to underwriters in underwritten offerings and confirm the same if and when requested, (ii) obtain opinions of counsel to the Company (which counsel and opinions, in form, scope and substance, shall be reason ably satisfactory to Special Counsel) addressed to each selling holder and underwriter of Registrable Securi ties, covering the matters customarily covered in opin ions requested in underwritten offerings, (iii) obtain "cold comfort" letters from the independent certified public accountants of the Company (and, if necessary, any other certified public accountant of any subsidiary of the Company, or of any business acquired by the Company for which financial statements and financial data is or is required to be included in the Registra tion Statement) addressed to each selling holder and underwriter of Registrable Securities, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters in connec tion with underwritten offerings, and (iv) deliver such documents and certificates as may be reasonably request ed by the holders of a majority in principal amount of the Registrable Securities being sold to evidence the continued validity of the representations and warranties of the Company made pursuant to clause (i) above and to evidence compliance with any customary conditions con tained in an underwriting agreement; (m) in the case of a Shelf Registration, make available for inspection by a representative of the holders of Registrable Securities being sold, Special Counsel and an accountant retained by such selling hold ers, in a manner designed to permit underwriters to sat isfy their due diligence investigation under the Securi ties Act, all financial and other records, pertinent corporate documents and properties of the Company, and cause the officers, directors and employees of the Company and its subsidiaries to supply all information reasonably requested by any such representative, attor ney or accountant in connection with such registration; provided, however, that any records, information or documents that are designated by the Company as confi dential at the time of delivery of such records, infor mation or documents shall be kept confidential by such persons, unless (i) such records, information or docu ments are in the public domain or otherwise publicly available, (ii) disclosure of such records, information or documents is required by court or administrative order, (iii) disclosure of such records, information or documents, in the written opinion of counsel to such person, is otherwise required by law (including, without limitation, pursuant to the requirements of the Securi ties Act) or (iv) disclosure of such records, informa tion or document is necessary to avoid or correct a misstatement or omission in the Registration Statement, Prospectus supplement or any post-effective amendment; (n) provide an indenture trustee for the Registrable Securities or Exchange Notes, as the case may be, and cause the indenture (or the indenture gov erning the Exchange Notes) to be qualified under the TIA not later than the effective date of any registration; and in connection therewith, cooperate with the trustee to effect such changes to such indenture as may be required for such indenture to be so qualified in accor dance with the terms of the TIA and execute, and use its best efforts to cause the trustee to execute, all docu ments as may be required to effect such changes, and all other forms and documents required to be filed with the SEC to enable such indenture to be so qualified in a timely manner; and (o) comply with all applicable rules and regulations of the SEC and, in the case of a Shelf Registration, make generally available to its security holders an earnings statement satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder no later than 45 days after the end of any 12-month period (or 90 days after the end of any 12-month period if such period is a fiscal year), com mencing on the first day of the first fiscal quarter of the Company commencing after the effective date of a Registration Statement, which statement shall cover said 12-month period. The Company may require each seller of Regis trable Securities under a Shelf Registration to furnish to the Company such information regarding the distribu tion of such Registrable Securities as the Company may from time to time reasonably request in writing and each holder in acquiring such Registrable Securities agrees to supply such information to the Company promptly upon such request. Each holder of Registrable Securities agrees by acquisition of such Registrable Securities that, in the event of a Shelf Registration, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 4(c)(iii), 4(c)(iv), 4(c)(vi), 4(c)(vii) or 4(c)(viii) hereof, such holder will forthwith discontinue disposition of such Registra ble Securities covered by such Registration Statement or Prospectus until such holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 4(k) hereof, or until it is advised in writing (the "Advice") by the Company that the use of the appli cable Prospectus may be resumed, and has received copies of any additional or supplemental filings which are incorporated or deemed to be incorporated by reference in such Prospectus. 5. Registration Expenses The Company shall pay all fees and expenses incident to the performance of or compliance with this Agreement by the Company including, without limitation, (i) all SEC, stock exchange or National Association of Securities Dealers, Inc. registration and filing fees, (ii) all fees and expenses incurred in connection with compliance with state securities or blue sky laws (in cluding reasonable fees and disbursements of counsel for any underwriters or holders in connection with blue sky qualification of any of the Exchange Notes or Regis trable Securities), (iii) all expenses of any persons in preparing or assisting in preparing, word processing, printing and distributing any Registration Statement, any Prospectus, any amendments or supplements thereto, any underwriting agreements, securities sales agreements and other documents relating to the performance of and compliance with this Agreement, (iv) all rating agency fees and (v) the fees and disbursements of counsel for the Company, Special Counsel to the holders of Registra ble Securities and of the independent public accountants of the Company, including the expenses of any special audits or "cold comfort" letters required by or incident to such performance and compliance, but excluding fees of counsel to the underwriters and underwriting dis counts and commissions and transfer taxes, if any, relating to the sale or disposition of Registrable Securities by a holder of Registrable Securities. 6. Indemnification The Company agrees to indemnify and hold harm less the Purchasers and each holder of Registrable Secu rities and each person, if any, who controls the Pur chasers or any holder of Registrable Securities within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages and liabilities (includ ing, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) caused by any untrue statement or alleged untrue statement of a mate rial fact contained in the Registration Statement or any amendment thereof, any preliminary prospectus or the Prospectus (as amended and supplemented if the Company shall have furnished any amendments or supplements thereto), or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages or liabilities are caused by any such untrue statement or omission or alleged untrue statement or omission based upon information relating to the Purchas ers or any holder of Registrable Securities furnished to the Company in writing by such Purchasers or holder of Registrable Securities expressly for use therein. In connection with any Shelf Registration in which a holder of Registrable Securities is participat ing, in furnishing information relating to such holder of Registrable Securities to the Company in writing expressly for use in such Registration Statement, any preliminary prospectus, the Prospectus or any amendments or supplements thereto, the holders of such Registrable Securities agree severally and not jointly, to indemnify and hold harmless the Purchasers and each person, if any, who controls the Purchasers within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act and the Company, its directors, its officers who sign a Registration Statement and each person, if any, who controls the Company within the meaning of either such Section, from and against any and all losses, claims, damages and liabilities (including, without limitation, any legal or other expenses reason ably incurred in connection with defending or investi gating any such action or claim) caused by any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any amendment thereof, any preliminary prospectus or the Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto), or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, but only with reference to such information relating to such holder of Registrable Securities furnished in writing by or on behalf of such holder of Registrable Securities expressly for use in the Registration State ment, any preliminary prospectus, the Prospectus or any amendments or supplements thereto. The Purchasers agree, severally and not joint ly, to indemnify and hold harmless the Company, the holders of Registrable Securities, the directors of the Company, the officers of the Company who sign the Regis tration Statement and each person, if any, who controls the Company or any holder of Registrable Securities within the meaning of either Section 15 of the Securi ties Act or Section 20 of the Exchange Act from and against any and all losses, claims, damages and liabili ties (including, without limitation, any legal or other expenses reasonably incurred in connection with defend ing or investigating any such action or claim) caused by any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any amendment thereof, any preliminary prospectus or the Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto), or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, but only with reference to information relating to the Purchasers furnished to the Company in writing expressly for use in the Registration Statement, any preliminary prospectus, the Prospectus or any amend ments or supplements thereto. In case any proceeding (including any govern mental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to any of the three preceding paragraphs, such person (the "indemnified party") shall promptly notify the person against whom such indemnity may be sought (the "indemnifying party") in writing and the indemnify ing party, upon request of the indemnified party, shall retain counsel reasonably satisfactory to the indemni fied party to represent the indemnified party and any others the indemnifying party may designate in such proceeding and shall pay the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the indemnifying party and the indemni fied party shall have mutually agreed to the retention of such counsel or (ii) the parties to any such proceed ing (including any impleaded parties) include both the indemnifying party and the indemnified party and repre sentation of both parties by the same counsel would be inappropriate due to the actual or potential differing interests between them. It is understood that the indemnifying party shall not, in respect of the legal expenses of any indemnified party in connection with any proceeding or related proceedings in the same jurisdic tion, be liable for (a) the fees and expenses of more than one separate firm (in addition to any local coun 2 sel) for the Purchasers and all persons, if any, who control the Purchasers within the meaning of either Sec tion 15 of the Securities Act or Section 20 of the Exchange Act, (b) the fees and expenses of more than one separate firm (in addition to any local counsel) for the Company, its directors, its officers who sign the Regis tration Statement and each person, if any, who controls the Company within the meaning of either such Section and (c) the fees and expenses of more than one separate firm (in addition to any local counsel) for all holders of Registrable Securities and all persons, if any, who control any holders of Registrable Securities within the meaning of either such Section, and that all such fees and expenses shall be reimbursed as they are incurred. In such case involving the Purchasers and such control persons of the Purchasers, such firm shall be designated in writing by Credit Suisse First Boston Corporation. In such case involving the holders of Registrable Secu rities and such controlling persons of holders of Regis trable Securities, such firm shall be designated in writing by holders of a majority in aggregate principal amount of Registrable Securities. In all other cases, such firm shall be designated by the Company. The indemnifying party shall not be liable for any settle ment of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settle ment or judgment. Notwithstanding the foregoing sen tence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indem nified party for fees and expenses of counsel as contem plated by the second and third sentences of this para graph, the indemnifying party agrees that it shall be liable for any settlement of any proceeding effected without its written consent, provided that (i) such set tlement is entered into more than 30 days after receipt by such indemnifying party of the aforesaid request and (ii) such indemnifying party shall not have reimbursed the indemnified party in accordance with such request prior to the date of such settlement unless the indemni fying party has contested such obligation and provides reasonable assurances that such payment can be made upon resolution of such dispute. No indemnifying party shall, without the prior written consent of the indemni fied party, effect any settlement of any pending or threatened proceeding in respect of which any indemni fied 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 claims that are the subject matter of such proceeding. If the indemnification provided for in the first, second or third paragraph of this Section 6 is unavailable to an indemnified party or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then each indemnifying party under such paragraph, in lieu of indemnifying such indemnified party thereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities in such propor tion as is appropriate to reflect the relative fault of the indemnifying party or parties on the one hand and of the indemnified party or parties on the other hand in connection with the statements or omissions that result ed in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative fault of the holders of Registrable Securi ties on the one hand and the Purchasers on the other hand 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 holders of Registrable Securities or by the Purchasers and the parties', relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The parties hereto agree that it would not be just or equitable if contribution pursuant to this Sec tion 6 were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in the immedi ately preceding paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 6, no holder of Registrable Securities shall be required to indemnify or contribute any amount in excess of the amount by which the total price at which the Registrable Securities sold by such holder of Registrable Securities and distributed to the public were offered to the public exceeds the amount of any damages that such holder of Registrable Securities has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or al leged omission. No person guilty of fraudulent misrep resentation (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 misrep resentation. The remedies provided for in this Section 6 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any indem nified party at law or in equity. The indemnity and contribution provisions con tained in this Section 6 shall remain operative and in full force and effect regardless of any investigation made by or on behalf of the Purchasers or any person controlling the Purchasers, any holder of Registrable Securities or any person controlling the holder of Registrable Securities, or the Company, its officers or directors or any person controlling the Company. 7. Miscellaneous (a) Remedies. In the event of a breach by the Company of any of its obligations under this Agreement, each holder of Registrable Securities, in addition to being entitled to exercise all rights grant ed by law, including recovery of damages, will be enti tled to specific performance of its rights under this Agreement. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, they shall waive the defense that a remedy at law would be adequate. (b) No Inconsistent Agreements. The Company shall not, on or after the date of this Agree ment, enter into any agreement with respect to its secu rities which is inconsistent with the rights granted to the holders of Registrable Securities in this Agreement or otherwise conflicts with the provisions hereof. (c) Amendments and Waivers. The provi sions of this Agreement, including the provisions of this sentence, may not be amended, modified or supple mented, and waivers or consents to departures from the provisions hereof may not be given, unless the Company has obtained the written consent of holders of a majori ty of the then outstanding aggregate principal amount of Registrable Securities. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter which relates exclusively to the rights of holders of Registrable Securities whose securities are being sold pursuant to a Registration Statement and which does not directly or indirectly affect the rights of other holders of Registrable Secu rities may be given by holders of at least a majority in aggregate principal amount of the Registrable Securities being sold by such holders. (d) Notices. All notices and other com munications provided or permitted hereunder shall be made in writing by hand-delivery, registered first-class mail, telex, or telecopier: (i) if to a holder of Registrable Securities, at the most current address given by such holder to the Company in accordance with the provisions of this Section 7(d), which address ini tially is, with respect to the Purchasers, the ad dress set forth on the first page of the Purchase Agreement; and (ii) if to the Company, initially at its address set forth on the first page of the Purchase Agreement and thereafter by such other address, notice of which is given in accordance with the provision of this Section 7(d). All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; two business days after being deposited in the mail, postage prepaid, if mailed; one business day after being sent by next-day solvent air courier; when answered back, if telexed; and when re ceipt acknowledged, if telecopied. Copies of all such notices, demands or other communications shall be concurrently delivered by the person giving the same to the Trustee under the Inden ture at the address specified in such Indenture. (e) Successors and Assigns. This Agree ment shall inure to the benefit of and be binding upon the successors and assigns of each of the parties, in 3 cluding without limitation and without the need for an express assignment, subsequent holders of Registrable Securities. (f) Counterparts. This Agreement may be executed in any number of counterparts and by the par ties 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. (g) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (h) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to principles of conflicts of laws. (i) Severability. If any term, provi sion, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provi sions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their best efforts to find and employ an alternative means to achieve the same or substantial ly the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipu lated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such which may be hereafter declared invalid, void or unenforceable. (j) Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement, and is intended to be a complete and exclu sive statement of the agreement and understanding of the parties hereto in respect of the subject matter con tained herein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein, with respect to the registration rights granted by the Company with respect to the secu rities sold pursuant to the Purchase Agreement. This Agreement supersedes all prior agreements and under 4 standings between the parties with respect to such subject matter. (k) Securities Held by the Company or its Affiliates. Whenever the consent or approval of holders of a specified percentage of Registrable Securities is required hereunder, Registrable Securities held by the Company or any of its affiliates (as such term is de fined in Rule 405 under the Securities Act) (other than the Purchasers or subsequent holders of Registrable Securities if such subsequent holders are deemed to be such affiliates solely by reason of their holding of such Registrable Securities) shall not be counted in determining whether such consent or approval was given by the holders of such required percentage or amount. 5 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. CALPINE CORPORATION By:_________________________________ Name: Title: CREDIT SUISSE FIRST BOSTON CORPORATION MORGAN STANLEY & CO. INCORPORATED SALOMON BROTHERS INC SCOTIA CAPITAL MARKETS (USA) INC. BANCAMERICA SECURITIES, INC. CIBC WOOD GUNDY SECURITIES CORP. By: CREDIT SUISSE FIRST BOSTON CORPORATION By:_________________________________ Name: Title: 6 EX-10.1.18 6 CREDIT AGREEMENT DATED 6/23/97 U.S. $125,000,000 CREDIT AGREEMENT, dated as of June 23, 1997, among CALPINE FINANCE COMPANY, as the Borrower, and CERTAIN COMMERCIAL LENDING INSTITUTIONS, as the Lenders, and THE BANK OF NOVA SCOTIA as the Agent for the Lenders. CREDIT AGREEMENT THIS CREDIT AGREEMENT, dated as of June 23, 1997, among CALPINE FINANCE COMPANY, a Delaware corporation (the "Borrower"), the various financial institutions as are or may become parties hereto (collectively, the "Lenders"), and THE BANK OF NOVA SCOTIA ("Scotiabank"), as agent (the "Agent") for the Lenders, W I T N E S S E T H: WHEREAS, pursuant to a Purchase and Sale Agreement, dated as of March 27, 1997 (as so originally executed and delivered, the "Purchase Agreement"), between the Borrower and Enron Power Corp., a Delaware corporation ("Seller"), Seller has agreed to sell, and the Borrower has agreed to purchase, 7,095 shares of Class A Common Stock of Enron/Dominion Cogen Corp., a Delaware corporation ("EDCC"), constituting all of the issued and outstanding shares of Class A Common Stock of EDCC (the "Stock Purchase"), which constitutes 50% of the total issued and outstanding shares of capital stock of EDCC, the other 50% being held by Dominion Cogen, Inc., a Virginia corporation ("Dominion"); WHEREAS, EDCC owns 100% of the issued and outstanding stock of Enron Cogeneration One Company, a Delaware corporation ("EC1"), which in turn owns 100% of the issued and outstanding stock of Cogenron Inc., a Delaware corporation ("Cogenron"); WHEREAS, EDCC owns a 98% limited partnership interest in Clear Lake Cogeneration Limited Partnership, a Texas limited partnership ("Clear Lake") and 100% of Enron Cogeneration Three Company, a Delaware corporation ("EC3") which owns a 2% general partnership interest in Clear Lake; WHEREAS, the Borrower has acquired all of the project financed indebtedness of Cogenron incurred pursuant to the Credit Agreement dated as of January 17, 1991 among Cogenron, Cogenron Funding Corp., a Delaware corporation, the lenders named therein (the "Cogenron Lenders") and The Bank of New York, as agent ("BONY") (the "Cogenron Credit Agreement") pursuant to an Assignment Agreement dated June 23, 1997 among the Borrower, BONY and the Cogenron Lenders (the "Cogenron Debt Acquisition"); WHEREAS, the Borrower has acquired all of the project financed indebtedness of Clear Lake incurred pursuant to the Amended and Restated Credit Agreement dated as of January 18, 1994 among Clear Lake, the lenders named therein (the "Clear Lake Lenders") and Barclays Bank plc, as Agent ("Barclays") (the "Clear Lake Credit Agreement") pursuant to an Assignment Agreement dated June 23, 1997 among the Borrower, Barclays and -1- the Clear Lake Lenders (the "Clear Lake Debt Acquisition") (the Cogenron Debt Acquisition and the Clear Lake Debt Acquisition are referred to herein collectively as the "Debt Acquisitions") (the Stock Purchase and the Debt Acquisitions are referred to collectively as the "Transaction"); WHEREAS, EDCC owns 100% of the issued and outstanding stock of Enron Cogeneration Five Company, a Delaware corporation ("EC5"), which in turn owns a 7.06% joint venture interest in Cogen Technologies NJ Venture, a New Jersey joint venture ("Cogen Venture"); WHEREAS, pursuant to the Reorganization Agreement, Dominion receives all the economic benefits and undertakes all the liabilities with respect to EDCC's indirect interest in Cogen Venture; WHEREAS, in connection with the Transaction, the Borrower desires to obtain Commitments from the Lenders pursuant to which Loans, in a maximum aggregate principal amount not to exceed $125,000,000, will be made to the Borrower on the closing date; and WHEREAS, the Lenders are willing, on the terms and subject to the conditions hereinafter set forth (including Article V), to extend such Commitments and make such Loans to the Borrower; and WHEREAS, the proceeds of such Loans will be used (a) to finance a portion of the Stock Purchase, in an amount not to exceed $35,450,000 as adjusted pursuant to the Purchase Agreement; (b) to finance a portion of the Cogenron Debt Acquisition, in a principal amount not to exceed $52,999,300 (plus accrued interest); (c) to finance a portion of the Clear Lake Debt Acquisition, in a principal amount not to exceed $102,622,665 (plus accrued interest); and (d) to finance a portion of the expenses incurred in connection with the Transaction, in an amount not to exceed $3,500,000; NOW, THEREFORE, the parties hereto agree as follows: -2- ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.1. Defined Terms. The following terms (whether or not underscored) when used in this Agreement, including its preamble and recitals, shall, except where the context otherwise requires, have the following meanings (such meanings to be equally applicable to the singular and plural forms thereof): "Affiliate" of any Person means any other Person which, directly or indirectly, controls, is controlled by or is under common control with such Person (excluding any trustee under, or any committee with responsibility for administering, any Plan). A Person shall be deemed to be "controlled by" any other Person if such other Person possesses, directly or indirectly, power (a) to vote 10% or more of the securities (on a fully diluted basis) having ordinary voting power for the election of directors or managing general partners; or (b) to direct or cause the direction of the management and policies of such Person whether by contract or otherwise. "Agent" is defined in the preamble and includes each other Person as shall have subsequently been appointed as the successor Agent pursuant to Section 9.4. "Agreement" means, on any date, this Credit Agreement as originally in effect on the Effective Date and as thereafter from time to time amended, supplemented, amended and restated, or otherwise modified and in effect on such date. "Alternate Base Rate" means, on any date and with respect to all Base Rate Loans, a fluctuating rate of interest per annum equal to the higher of (a) the rate of interest most recently announced by Scotiabank at its Domestic Office as its base rate; and (b) the Federal Funds Rate most recently determined by the Agent plus 1/2 of 1%. The Alternate Base Rate is not necessarily intended to be the lowest rate of interest determined by the Scotiabank in connection with extensions of credit. Changes in the rate of interest on that portion of any Loans maintained as Base Rate Loans will take effect simultaneously with each change in the Alternate Base Rate. The Agent will give notice promptly to the Borrower and the Lenders of changes in the Alternate Base Rate. -3- "Asset Sale" means any sale, assignment, transfer or other disposition of any Property (whether now owned or hereafter acquired) by the Borrower or any of its Subsidiaries to any Person excluding any sale, assignment, transfer or other disposition of any equipment which, in the reasonable judgment of the Borrower, has become obsolete, worn out or uneconomic in the ordinary course of business, the proceeds of which are used to purchase replacement equipment within 60 days from the date of sale, assignment, transfer or other disposition. "Assignee Lender" is defined in Section 10.11.1. "Authorized Officer" means, relative to any Obligor, those of its officers whose signatures and incumbency shall have been certified to the Agent and the Lenders pursuant to Section 5.1.8. "Barclays" is defined in the fifth recital. "Base Rate Loan" means a Loan bearing interest at a fluctuating rate determined by reference to the Alternate Base Rate. "Basic Documents" means the Loan Documents, the Purchase Documents, the Debt Assignment Documents, the Project Loan Documents and the Project Documents. "BONY" is defined in the fourth recital. "Borrower" is defined in the preamble. "Borrowing" means the Loans of the same type and, in the case of LIBO Rate Loans, having the same Interest Period made by all Lenders on the same Business Day and pursuant to the same Borrowing Request in accordance with Section 2.1. "Borrowing Request" means a loan request and certificate duly executed by an Authorized Officer of the Borrower, substantially in the form of Exhibit B hereto. "Business Day" means (a) any day which is neither a Saturday or Sunday nor a legal holiday on which banks are authorized or required to be closed in San Francisco, California or New York, New York; and (b) relative to the making, continuing, prepaying or repaying of any LIBO Rate Loans, any day on which dealings in Dollars are carried on in the London interbank market. "Calpine" means Calpine Corporation, a Delaware corporation. -4- "Calpine Equity Contribution" means the cash contribution by Calpine to the equity of the Borrower. "Calpine Subordinated Indebtedness" means all Indebtedness of the Borrower to Calpine which is subordinated pursuant to the Subordination Agreement to the Obligations. "Capitalized Lease Liabilities" means all rental obligations of the Borrower or any of its Subsidiaries under any leasing or similar arrangement which, in accordance with GAAP, would be classified as capitalized leases, and, for purposes of this Agreement and each other Loan Document, the amount of such obligations shall be the capitalized amount thereof, determined 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 terminated by the lessee without payment of a penalty. "Cash Equivalent Investment" means, at any time: (a) any evidence of the Indebtedness, maturing not more than one year after such time, issued or guaranteed by the United States Government or an agency or instrumentality thereof; (b) commercial paper, maturing not more than nine months from the date of issue, which is issued by (i) a corporation (excluding Affiliates of any Obligor other than Credit Suisse) organized under the laws of any state of the United States or of the District of Columbia and rated A-l by Standard & Poor's Corporation or P-l by Moody's Investors Service, Inc., or (ii) any Lender (or its holding company or Affiliate); (c) any certificate of deposit or bankers acceptance, maturing not more than one year after such time, which is issued by either (i) a commercial banking institution that is a member of the Federal Reserve System and has a combined capital and surplus and undivided profits of not less than $500,000,000, or (ii) any Lender; or (d) money market mutual funds registered with the Securities and Exchange Commission; -5- (e) corporate evidences of indebtedness rated A or better by S&P or A2 or better by Moody's; (f) any repurchase agreement entered into with any Lender (or other commercial banking institution of the stature referred to in clause (c)(i)) which (i) is secured by a fully perfected security interest in any obligation of the type described in any of clauses (a) through (c); and (ii) has a market value at the time such repurchase agreement is entered into of not less than 100% of the repurchase obligation of such Lender (or other commercial banking institution) thereunder. "Cash Flow" means, for any period, as applied to the Borrower, the amount of all cash received from all sources, including (i) dividends or other distributions from EDCC, and (ii) any Project Indebtedness Payments received from Cogenron or Clear Lake under the Project Loan Documents, but excluding payments and other amounts received by the Borrower pursuant to the Project Loan Documents in its capacity as "Bank" of "Lender" thereunder which, under the terms of the Project Loan Documents, are to be applied (i) to payments under the Project Documents prior to the payment of Project Indebtedness Payments or (ii) which are to be deposited into reserve or similar accounts or which are distributable to the respective borrowers under the Project Loan Documents after the payment of Project Indebtedness Payments. "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended. "CERCLIS" means the Comprehensive Environmental Response Compensation Liability Information System List. "Change in Control" means (i)the acquisition by any Person, or two or more Persons acting in concert, of beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934) of 20% or more of the outstanding shares of voting stock of Calpine, (ii) the failure of Calpine to own, directly or indirectly, free and clear of all Liens or other encumbrances (other than those created pursuant to the Loan Documents), 100% of the issued and outstanding shares of voting stock of the Borrower on a fully diluted basis or (iii) the failure of the Borrower to own 50% of the issued and outstanding shares of voting stock of EDCC on a fully diluted basis. "Clear Lake" is defined in the third recital. -6- "Clear Lake Credit Agreement" is defined in the fifth recital. "Clear Lake Debt Acquisition" is defined in the fifth recital. "Clear Lake Lenders" is defined in the fifth recital. "Clear Lake Project" means the approximately 377 megawatt gas-fired combined-cycle power plant located in Pasadena, Texas and owned by Clear Lake. "Clear Lake Standstill Agreement" means the Override and Standstill Agreement dated as of June 23, 1997 among Clear Lake, EC3, EDCC, DEI Texas, Inc., Dominion Cogen, Inc., Dominion Energy, Inc., Dominion Resources, Inc. and the Borrower. "Clear Lake Subordinated Indebtedness" means the subordinated Indebtedness of Clear Lake to EDCC subordinated pursuant to the Subordination Agreement (Clear Lake) to the Indebtedness of Clear Lake under the Clear Lake Credit Agreement. "Code" means the Internal Revenue Code of 1986, as amended, reformed or otherwise modified from time to time. "Cogen Venture" is defined in the sixth recital. "Cogenron" is defined in the second recital. "Cogenron Credit Agreement" is defined in the fourth recital. "Cogenron Debt Acquisition" is defined in the fourth recital. "Cogenron Lenders" is defined in the fourth recital. "Cogenron Project" means the approximately 450 megawatt gas- fired combined-cycle power plant located in Texas City, Texas and owned by Cogenron. "Cogenron Standstill Agreement" means the Override and Standstill Agreement date as of June 23, 1997 among Cogenron, Cogenron Funding Corp., EC1, EDCC, DEI Texas, Inc., Dominion Cogen, Inc., Dominion Energy, Inc., Dominion Resources, Inc. and the Borrower. "Collateral" means the collective reference to all property, and the proceeds thereof, described in the Collateral Security Documents. -7- "Collateral Security Documents" means the Deposit and Disbursement Agreement(s), the Pledge Agreement(s) and the Security Agreements. "Commitment" means, relative to any Lender, such Lender's obligation to make Loans pursuant to Section 2.1. "Commitment Amount" means $125,000,000. "Contingent Liability" means any agreement, undertaking or arrangement by which any Person guarantees, endorses or otherwise becomes or is contingently liable upon (by direct or indirect agreement, contingent or otherwise, to provide funds for payment, to supply funds to, or otherwise to invest in, a debtor, or otherwise to assure a creditor against loss) the indebtedness, obligation or any other liability of any other Person (other than by endorsements of instruments in the course of collection), or guarantees the payment of dividends or other distributions upon the shares of any other Person. The amount of any Person's obligation under any Contingent Liability shall be calculated on a net basis (i.e., after taking into effect agreements, undertakings and other arrangements between the Person whose obligations are being guaranteed and the counterparty to such Person's obligations) and shall (subject to any limitation set forth therein) be deemed to be the outstanding net principal amount (or maximum net principal amount, if larger) of the debt, obligation or other liability guaranteed thereby, or, if the principal amount is not stated or determinable, the maximum reasonably anticipated net liability in respect thereof as determined by the Person in good faith, provided that (y) the amount of any Contingent Liability arising out of any indebtedness, obligation or liability other than the items described in clauses (a), (b) and (c) of the definition of "Indebtedness" shall be deemed to be zero unless and until the Borrower's independent auditors have quantified the amount of the exposure thereunder (and thereafter shall be deemed to be the amount so quantified from time to time), and (z) the amount of any Contingent Liability consisting of a "keep-well", "make well" or other similar arrangement shall be deemed to be zero unless and until the Borrower is required to make any payment with respect thereto (and shall thereafter be deemed to be the amount required to be paid).. "Continuation/Conversion Notice" means a notice of continuation or conversion and certificate duly executed by an Authorized Officer of the Borrower, substantially in the form of Exhibit C hereto. "Controlled Group" means all members of a controlled group of corporations and all members of a controlled group of trades or businesses (whether or not incorporated) under common control -8- which, together with the Borrower, are treated as a single employer under Section 414(b) or 414(c) of the Code or Section 4001 of ERISA. "Debt Acquisitions" is defined in the fifth recital. "Debt Assignment Documents" means the documents pursuant to which the Debt Acquisitions are consummated. "Default" means any Event of Default or any condition, occurrence or event which, after notice or lapse of time or both, would constitute an Event of Default. "Deposit and Disbursement Agreement" means the Deposit and Disbursement Agreement executed and delivered by the Borrower pursuant to Section 5.1.11, substantially in the form of Exhibit D hereto, as amended, supplemented, restated or otherwise modified from time to time. "Disclosure Schedule" means the Disclosure Schedule attached hereto as Schedule 1, as it may be amended, supplemented or otherwise modified from time to time by the Borrower with the written consent of the Agent and the Required Lenders. "Dollar" and the sign "$" mean lawful money of the United States. "Domestic Office" means, relative to any Lender, the office of such Lender designated as such below its signature hereto or designated in the Lender Assignment Agreement or such other office of a Lender (or any successor or assign of such Lender) within the United States as may be designated from time to time by notice from such Lender, as the case may be, to each other Person party hereto. "Dominion" is defined in the first recital. "EC1" is defined in the second recital. "EC3" is defined in the third recital. "EC5" is defined in the sixth recital. "EDCC" is defined in the first recital. "EDCC Distribution" means any distribution received by the Borrower from EDCC or any of its Subsidiaries, whether in cash or other property, and whether in respect of dividends, advances or otherwise except any dividends issued pursuant to paragraph 1 of Article FOURTH of the amended certificate of incorporation of EDCC to the extent such dividends are required to and are -9- promptly recontributed to EDCC pursuant to a Recontribution Agreement (as defined in such paragraph 1). "Effective Date" means the date this Agreement becomes effective pursuant to Section 10.8. "Environmental Laws" means all applicable federal, state or local statutes, laws, ordinances, codes, rules, regulations and guidelines (including consent decrees and administrative orders) relating to public health and safety and protection of the environment. "Equity Issuance" means (a) any issuance or sale by the Borrower or any of its Subsidiaries after the Effective Date of (i) any capital stock, (ii) any warrants or options exercisable in respect of capital stock, (iii) any other security or instrument representing an equity interest (or the right to obtain an equity interest) in the issuance or selling Person or (b) the receipt by the Company or by any of its Subsidiaries after the Effective Date of any capital contribution received (whether or not evidenced by any equity security issued by the recipient of such contribution). "Equity Support Agreements" means the equity support and guaranty agreements more specifically described in Schedule 8. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute of similar import, together with the regulations thereunder, in each case as in effect from time to time. References to sections of ERISA also refer to any successor sections. "Event of Default" is defined in Section 8.1. "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to (a) the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York; or (b) if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by Scotiabank from three federal funds brokers of recognized standing selected by it. -10- "Financial Projections" means the pro forma financial projections, dated April 1, 1997, a copy of which is attached hereto as Schedule 7. "Fiscal Quarter" means any quarter of a Fiscal Year. "Fiscal Year" means any period of twelve consecutive calendar months ending on December 31; references to a Fiscal Year with a number corresponding to any calendar year (e.g. the "1996 Fiscal Year") refer to the Fiscal Year ending on the December 31 occurring during such calendar year. "F.R.S. Board" means the Board of Governors of the Federal Reserve System or any successor thereto. "GAAP" is defined in Section 1.4. "Guaranty Agreement (By Enron)" means the Guaranty Agreement (By Enron) dated as of March 27, 1997 issued by Enron Corp. "Hazardous Material" means (a) any "hazardous substance", as defined by CERCLA; (b) any "hazardous waste", as defined by the Resource Conservation and Recovery Act, as amended; (c) any petroleum product; or (d) any pollutant or contaminant or hazardous, dangerous or toxic chemical, material or substance within the meaning of any other applicable federal, state or local law, regulation, ordinance or requirement (including consent decrees and administrative orders) relating to or imposing liability or standards of conduct concerning any hazardous, toxic or dangerous waste, substance or material, all as amended or hereafter amended. "Hedging Obligations" means, with respect to any Person, all liabilities of such Person under interest rate swap agreements, interest rate cap agreements and interest rate collar agreements, and all other agreements or arrangements designed to protect such Person against fluctuations in interest rates or currency exchange rates. "herein", "hereof", "hereto", "hereunder" and similar terms contained in this Agreement or any other Loan Document refer to this Agreement or such other Loan Document, as the case may be, as a whole and not to any particular Section, paragraph or provision of this Agreement or such other Loan Document. -11- "Impermissible Qualification" means, relative to the opinion or certification of any independent public accountant as to any financial statement of the Borrower, any qualification or exception to such opinion or certification (a) which is of a "going concern" or similar nature; (b) except with respect to EC5 and Cogen Venture, which relates to the limited scope of examination of matters relevant to such financial statement; or (c) which relates to the treatment or classification of any item in such financial statement and which, as a condition to its removal, would require an adjustment to such item the effect of which would be to cause the Borrower to be in default of any of its obligations under Section 7.2.4. "including" means including without limiting the generality of any description preceding such term, and, for purposes of this Agreement and each other Loan Document, the parties hereto agree that the rule of ejusdem generis shall not be applicable to limit a general statement, which is followed by or referable to an enumeration of specific matters, to matters similar to the matters specifically mentioned. "Income Tax Expense" means, for any period, as applied to the Borrower, the provision for local, state, federal or foreign income taxes on a consolidated basis for such period determined in accordance with GAAP. "Indebtedness" of any Person means, without duplication: (a) all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments; (b) all obligations, contingent or otherwise, relative to the face amount of all letters of credit, whether or not drawn, and banker's acceptances issued for the account of such Person; (c) all obligations of such Person as lessee under leases which have been or should be, in accordance with GAAP, recorded as Capitalized Lease Liabilities; (d) all other items other than deferred taxes, deferred revenue and deferred leases which, in accordance with GAAP, would be included as liabilities on the liability side of the balance sheet of such Person as of the date at which Indebtedness is to be determined; -12- (e) net liabilities of such Person under all Hedging Obligations; (f) whether or not so included as liabilities in accordance with GAAP, all obligations of such Person to pay the deferred purchase price of property or services, and indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse; and (g) all Contingent Liabilities of such Person in respect of any of the foregoing. For all purposes of this Agreement, the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture in which such Person is a general partner or a joint venturer, unless the indebtedness of such partnership or joint venture is expressly nonrecourse to such Person. "Indemnification Agreement" means the Indemnification Agreement executed and delivered by Calpine pursuant to Section 5.1.22, substantially in the form of Exhibit L hereto, as amended, supplemented, restated or otherwise modified from time to time. "Indemnification and Allocation Agreement" means the Indemnification and Allocation Agreement dated as of March 27, 1997 by and between the Borrower and the Seller. "Indemnified Liabilities" is defined in Section 10.4. "Indemnified Parties" is defined in Section 10.4. "Independent Engineer" means the Harris Group, or such other independent engineering firm as shall be engaged by the Agent to examine the Projects, and to advise and render such other reports to the Agent concerning the Projects or in connection with the Transaction or the Basic Documents as the Agent shall deem necessary or advisable. "Interest Coverage Ratio" means, for the four most recent Fiscal Quarters (or the period from the Effective Date to the date of determination, if four Fiscal Quarters have not occurred since the Effective Date), the ratio of (x) Cash Flow during such period to (y) Interest Expense incurred during such period. "Interest Expense" means, for any period, as applied to the Borrower, the sum of (a) the total interest expense of the -13- Borrower and its consolidated Subsidiaries for such period as determined in accordance with GAAP (other than interest expense under the Calpine Subordinated Indebtedness that is not paid currently or held under the Deposit and Disbursement Agreement as provided in Section 7.2.6(b)(ii), plus (b) all but the principal component of rentals in respect of Capitalized Lease Liabilities paid, accrued, or scheduled to be paid or accrued by the Borrower or its consolidated Subsidiaries, plus (c) capitalized interest of the Borrower and its consolidated Subsidiaries (other than capitalized interest under the Calpine Subordinated Indebtedness). "Interest Period" means, relative to any LIBO Rate Loans, the period beginning on (and including) the date on which such LIBO Rate Loan is made or continued as, or converted into, a LIBO Rate Loan pursuant to Section 2.2 or 2.3 and ending on (but excluding) the day which numerically corresponds to such date one, three or six months thereafter (or, if such month has no numerically corresponding day, on the last Business Day of such month), in either case as the Borrower may select in its relevant notice pursuant to Section 2.2 or 2.3; provided, however, that (a) the Borrower shall not be permitted to select Interest Periods to be in effect at any one time which have expiration dates occurring on more than five different dates; (b) Interest Periods commencing on the same date for Loans comprising part of the same Borrowing shall be of the same duration; and (c) if such Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall end on the next following Business Day (unless, if such Interest Period applies to LIBO Rate Loans, such next following Business Day is the first Business Day of a calendar month, in which case such Interest Period shall end on the Business Day next preceding such numerically corresponding day). "Investment" means, relative to any Person, (a) any loan or advance made by such Person to any other Person (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business); (b) any Contingent Liability of such Person; and (c) any ownership or similar interest held by such Person in any other Person. -14- The amount of any Investment shall be the original principal or capital amount thereof less all returns of principal or equity thereon (and without adjustment by reason of the financial condition of such other Person) and shall, if made by the transfer or exchange of property other than cash, be deemed to have been made in an original principal or capital amount equal to the fair market value of such property. "Lender Assignment Agreement" means a Lender Assignment Agreement substantially in the form of Exhibit I hereto. "Lenders" is defined in the preamble. "LIBO Rate" is defined in Section 3.2.1. "LIBO Rate Loan" means a Loan bearing interest, at all times during an Interest Period applicable to such Loan, at a fixed rate of interest determined by reference to the LIBO Rate (Reserve Adjusted). "LIBO Rate (Reserve Adjusted)" is defined in Section 3.2.1. "LIBOR Office" means, relative to any Lender, the office of such Lender designated as such below its signature hereto or designated in the Lender Assignment Agreement or such other office of a Lender as designated from time to time by notice from such Lender to the Borrower and the Agent, whether or not outside the United States, which shall be making or maintaining LIBO Rate Loans of such Lender hereunder. "LIBOR Reserve Percentage" is defined in Section 3.2.1. "Lien" means any security interest, mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or otherwise), charge against or interest in property to secure payment of a debt or performance of an obligation or other priority or preferential arrangement of any kind or nature whatsoever. "Loan" is defined in Section 2.1. "Loan Document" means this Agreement, the Notes, the Collateral Security Documents, the Subordination Agreement, the Swap Agreements, the Indemnification Agreement and each other agreement, document or instrument delivered in connection therewith. "Loan Purchase Agreement" means the Loan Purchase Agreement executed and delivered by Calpine and the Borrower pursuant to Section 5.1.21, substantially in the form of Exhibit K hereto, as -15- amended, supplemented, restated or otherwise modified from time to time. "Material Adverse Effect" means (a) a material adverse change in, or a material adverse effect upon the Transaction, either Project, or the financial condition, operations or assets (including any power projects) of the Borrower and its Subsidiaries taken as a whole; or (b) a material adverse change in the ability of the Borrower or any other Obligor to perform under any Loan Document. "Monthly Payment Date" means the last day of each calendar month or, if any such day is not a Business Day, the next succeeding Business Day. "Net Available Proceeds" means (i) in the case of any Asset Sale, the gross cash proceeds available to the Borrower less all transaction costs, and less the amount of all Indebtedness (other than Loans) secured by the Property sold and repaid in connection with such Asset Sale, (ii) in the case of any Equity Issuance, the gross consideration available to the Borrower received by or for account of the issuer less underwriting and brokerage commissions, discounts and fees and other professional fees and expenses relating to such issuance that are payable by the issuer, and all transaction costs, and less all amounts paid by the Borrower or its Subsidiaries to third parties under the Project Documents and all Project Indebtedness Payments made with the proceeds of such Equity Issuance and (iii) in the case of Project Indebtedness Payments or EDCC Distributions, the gross amount (except for netting of payments under Hedging Obligations) received by the Borrower with respect thereto. "Note" means a promissory note of the Borrower payable to any Lender, in the form of Exhibit A hereto (as such promissory note may be amended, endorsed or otherwise modified from time to time), evidencing the aggregate Indebtedness of the Borrower to such Lender resulting from outstanding Loans, and also means all other promissory notes accepted from time to time in substitution therefor or renewal thereof. "Obligations" means all obligations (monetary or otherwise) of the Borrower and each other Obligor arising under or in connection with this Agreement, the Notes and each other Loan Document. "Obligor" means the Borrower or any other Person (other than the Agent or any Lender) obligated under any Loan Document. "Organic Document" means, relative to any Obligor, its certificate of incorporation, its by-laws and all shareholder -16- agreements, voting trusts and similar arrangements applicable to any of its authorized shares of capital stock. "Participant" is defined in Section 10.11. "PBGC" means the Pension Benefit Guaranty Corporation and any entity succeeding to any or all of its functions under ERISA. "Pension Plan" means a "pension plan", as such term is defined in section 3(2) of ERISA, which is subject to Title IV of ERISA (other than a multiemployer plan as defined in section 4001(a)(3) of ERISA), and to which the Borrower or any corporation, trade or business that is, along with the Borrower, a member of a Controlled Group, may have liability, including any liability by reason of having been a substantial employer within the meaning of section 4063 of ERISA at any time during the preceding five years, or by reason of being deemed to be a contributing sponsor under section 4069 of ERISA. "Percentage" means, relative to any Lender, the percentage set forth opposite its signature hereto or set forth in the Lender Assignment Agreement, as such percentage may be adjusted from time to time pursuant to Lender Assignment Agreement(s) executed by such Lender and its Assignee Lender(s) and delivered pursuant to Section 10.11. "Person" means any natural person, corporation, partnership, firm, association, trust, government, governmental agency or any other entity, whether acting in an individual, fiduciary or other capacity. "Plan" means any Pension Plan or Welfare Plan. "Pledge Agreement" means the Pledge Agreement executed and delivered pursuant to Section 5.1.10, substantially in the form of Exhibit G hereto, as amended, supplemented, restated or otherwise modified from time to time. "Process Agent" is defined in Section 10.13(b). "Project Documents" means (i) the "Project Documents" as defined in the Clear Lake Credit Agreement which have not terminated, including those more specifically described in Schedule 3 and (ii) "Material Project Contracts" as defined in the Cogenron Credit Agreement which have not terminated, including those more specifically described in Schedule 4. "Project Indebtedness Payments" means payments of principal and interest under the Project Loan Documents. -17- "Project Loan Documents" means (i) the Clear Lake Credit Agreement and each other "Credit Document" (as defined in the Clear Lake Credit Agreement), including those more specifically described in Schedule 5 and (ii) the Cogenron Credit Agreement and each other "Loan Document" (as defined in the Cogenron Credit Agreement), including those more specifically described in Schedule 6. "Project Swap Agreements" means (i) the Interest Rate and Currency Exchange Agreement dated June 23, 1989 between Barclays Bank PLC and Clear Lake and (ii) the Interest Rate and Currency Exchange Agreement dated January 22, 1991 between The Bank of New York and Cogenron. "Projects" means the Clear Lake Project and the Cogenron Project. "Property" means any right or interest in or to property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible. "Purchase Agreement" is defined in the first recital. "Purchase Documents" means the Purchase Agreement, the Guaranty Agreement (By Enron) and the Indemnification and Allocation Agreement. "Quarterly Payment Date" means the last day of each March, June, September, and December or, if any such day is not a Business Day, the next succeeding Business Day. "Release" means a "release", as such term is defined in CERCLA. "Reorganization Agreement" means that certain Reorganization Agreement dated as of April 14, 1989 by and among Dominion Resources, Inc., Dominion, Enron Corporation and EDCC, as amended by that certain Amendment to Reorganization Agreement dated as of June 30, 1991 by and among such parties. "Required Lenders" means, at any time, Lenders holding at least 66 2/3% of the then aggregate outstanding principal amount of the Notes then held by the Lenders, or, if no such principal amount is then outstanding, Lenders having at least 66 2/3% of the Commitments. "Resource Conservation and Recovery Act" means the Resource Conservation and Recovery Act, 42 U.S.C. Section 690, et seq., as in effect from time to time. -18- "Security Agreements" means the Security Agreement and the Assignment and Security Agreement executed and delivered pursuant to Section 5.1.12, substantially in the form of Exhibit E and Exhibit F hereto, as amended, supplemented, restated or otherwise modified from time to time. "Seller" is defined in the first recital. "Senior Debt" means the outstanding principal amount of all Indebtedness of the Borrower and its Subsidiaries of the nature referred to in clauses (a), (b), (c) and (f) of the definition of "Indebtedness," but excluding Calpine Subordinated Indebtedness. "Senior Debt to Cash Flow Ratio" means, for any period of four Fiscal Quarters (or if four Fiscal Quarters have not passed from the Effective Date, the period from the Effective Date to the most recent Fiscal Quarter end), the ratio of (x) the consolidated Senior Debt of the Borrower and its Subsidiaries as of the end of the most recent Fiscal Quarter (after giving effect to payments made as of the end of such Fiscal Quarter) to (y) Cash Flow during such period (and, if four Fiscal Quarters have not passed from the Effective Date, converted to an annualized amount). "Shareholder's Agreement" means the Stockholder's Agreement dated as of June 27, 1988, among Enron Corp., Dominion Cogen, Inc. and Dominion Resources, Inc., as assigned by Enron Corp. to Calpine. "Standstill Agreements" means the Clear Lake Standstill Agreement and the Cogenron Standstill Agreement. "Stated Maturity Date" means June 22, 1998. "Stock Purchase" is defined in the first recital. "Subordination Agreement" means the Subordination Agreement executed and delivered by Calpine pursuant to Section 5.1.13, substantially in the form of Exhibit H hereto, as amended, supplemented, restated or otherwise modified from time to time. "Subordination Agreement (Clear Lake)" means the Amended and Restated Subordination Agreement dated as of January 18, 1994, by and among Clear Lake, EDCC and Barclays Bank PLC, as agent, as amended, supplemented, restated or otherwise modified from time to time. "Subsidiary" means, with respect to any Person, any corporation of which 50% or more of the outstanding capital stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether at the -19- time capital stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency) is at the time directly or indirectly owned by such Person, by such Person and one or more other Subsidiaries of such Person, or by one or more other Subsidiaries of such Person. "Swap Agreements" means (i) the Interest Rate and Currency Exchange Agreement dated concurrently herewith between the Borrower and Scotiabank, relating to the Cogenron Project, and (ii) the Interest Rate and Currency Exchange Agreement dated concurrently herewith between the Borrower and Scotiabank relating to the Clear Lake Project. "Tangible Net Worth" means the consolidated net worth of the Borrower and its Subsidiaries (including the Calpine Subordinated Indebtedness) after subtracting therefrom the aggregate amount of any intangible assets of the Borrower and its Subsidiaries, including goodwill, franchises, licenses, patents, trademarks, trade names, copyrights, service marks and brand names. "Taxes" is defined in Section 4.6. "Transaction" is defined in the fifth recital. "type" means, relative to any Loan, the portion thereof, if any, being maintained as a Base Rate Loan or a LIBO Rate Loan. "United States" or "U.S." means the United States of America, its fifty States and the District of Columbia. "Welfare Plan" means a "welfare plan", as such term is defined in section 3(1) of ERISA. "Wholly Owned Subsidiary" means a Subsidiary all the capital stock of which (other than directors' qualifying shares) is owned by the Borrower or another Wholly Owned Subsidiary. SECTION 1.2. Use of Defined Terms. Unless otherwise defined or the context otherwise requires, terms for which meanings are provided in this Agreement shall have such meanings when used in the Disclosure Schedule and in each Note, Borrowing Request, Continuation/Conversion Notice, Loan Document, notice and other communication delivered from time to time in connection with this Agreement or any other Loan Document. Unless the context otherwise requires, references (i) to agreements shall be deemed to mean and include such agreements as amended, supplemented and otherwise modified from time to time in a manner not in violation of the Loan Documents and (ii) to parties to agreements shall be deemed to include the permitted successors and assigns of such parties. -20- SECTION 1.3. Cross-References. Unless otherwise specified, references in this Agreement and in each other Loan Document to any Article or Section are references to such Article or Section of this Agreement or such other Loan Document, as the case may be, and, unless otherwise specified, references in any Article, Section or definition to any clause are references to such clause of such Article, Section or definition. SECTION 1.4. Accounting and Financial Determinations. Unless otherwise specified, all accounting terms used herein or in any other Loan Document shall be interpreted, all accounting determinations and computations hereunder or thereunder (including under Section 7.2.4) shall be made, and all financial statements required to be delivered hereunder or thereunder shall be prepared in accordance with, those generally accepted accounting principles ("GAAP") applied in the preparation of the financial statements referred to in Section 6.5. ARTICLE II COMMITMENTS, BORROWING PROCEDURES AND NOTES SECTION 2.1. Commitments. On the terms and subject to the conditions of this Agreement (including Article V), each Lender severally agrees to make Loans pursuant to the Commitments described in this Section 2.1. On or before June 30, 1997, upon the satisfaction or waiver of the conditions precedent set forth in Article V, each Lender will make Loans (relative to such Lender, and of any type, its "Loans") to the Borrower equal to such Lender's Percentage of $125,000,000. The commitment of each Lender described in this Section 2.1 is herein referred to as its "Commitment". No amounts paid or prepaid with respect to any Loans may be reborrowed. SECTION 2.2. Borrowing Procedure. By delivering a Borrowing Request to the Agent on or before 10:00 a.m., San Francisco time, on a Business Day not later than June 30, 1997, the Borrower may from time to time irrevocably request, on not less than three Business Days' notice, in the case of LIBO Rate Loans, or one Business Day's notice, in the case of Base Rate Loans, that a Borrowing be made in the amount of $125,000,000. On the terms and subject to the conditions of this Agreement, each Borrowing shall be comprised of the type of Loans, and shall be made on the Business Day, specified in such Borrowing Request. On or before 11:00 a.m., San Francisco time, on such Business Day each Lender shall deposit with the Agent same day funds in an amount equal to such Lender's Percentage of the requested Borrowing. Such deposit will be made to an account which the Agent shall specify from time to time by notice to the Lenders. To the extent funds are received from the Lenders by such time, -21- the Agent shall make such funds available to the Borrower by wire transfer to the accounts the Borrower shall have specified in its Borrowing Request by 12:00 p.m. on such Business Day. No Lender's obligation to make any Loan shall be affected by any other Lender's failure to make any Loan. SECTION 2.3. Continuation and Conversion Elections. By delivering a Continuation/Conversion Notice to the Agent on or before 10:00 a.m., San Francisco time, on a Business Day, the Borrower may from time to time irrevocably elect, on not less than three nor more than five Business Days' notice that all, or any portion in an aggregate minimum amount of $5,000,000, of any Loans be, in the case of Base Rate Loans, converted into LIBO Rate Loans or, in the case of LIBO Rate Loans, be converted into a Base Rate Loan or continued as a LIBO Rate Loan (in the absence of delivery of a Continuation/ Conversion Notice with respect to any LIBO Rate Loan at least three Business Days before the last day of the then current Interest Period with respect thereto, such LIBO Rate Loan shall, on such last day, automatically convert to a Base Rate Loan); provided, however, that (i) each such conversion or continuation shall be prorated among the applicable outstanding Loans of all Lenders, and (ii) no portion of the outstanding principal amount of any Loans may be continued as, or be converted into, LIBO Rate Loans when any Default has occurred and is continuing. The Agent shall promptly transmit the information in each Continuation/Conversion Notice to each Lender. SECTION 2.4. Funding. Each Lender may, if it so elects, fulfill its obligation to make, continue or convert LIBO Rate Loans hereunder by causing one of its foreign branches or Affiliates (or an international banking facility created by such Lender) to make or maintain such LIBO Rate Loan; provided, however, that such LIBO Rate Loan shall nonetheless be deemed to have been made and to be held by such Lender, and the obligation of the Borrower to repay such LIBO Rate Loan shall nevertheless be to such Lender for the account of such foreign branch, Affiliate or international banking facility; provided, further, that each Lender shall use reasonable efforts in making any such election to minimize the costs payable by Borrower hereunder with respect to any Loan or Commitment. In addition, the Borrower hereby consents and agrees that, for purposes of any determination to be made for purposes of Sections 4.1, 4.2, 4.3 or 4.4, it shall be conclusively assumed that each Lender elected to fund all LIBO Rate Loans by purchasing Dollar deposits in its LIBOR Office's interbank eurodollar market. SECTION 2.5. Notes. Each Lender's Loans under its Commitment shall be evidenced by a Note payable to the order of such Lender in a maximum principal amount equal to such Lender's Percentage of the original Commitment Amount. The Borrower -22- hereby irrevocably authorizes each Lender to make (or cause to be made) appropriate notations on the grid attached to such Lender's Note (or on any continuation of such grid), which notations, if made, shall evidence, inter alia, the date of, the outstanding principal of, and the interest rate and Interest Period applicable to the Loans evidenced thereby. Such notations shall be conclusive and binding on the Borrower absent manifest error; provided, however, that the failure of any Lender to make any such notations shall not limit or otherwise affect any Obligations of the Borrower. ARTICLE III REPAYMENTS, PREPAYMENTS, INTEREST AND FEES SECTION 3.1. Repayments and Prepayments. The Borrower shall repay in full the unpaid principal amount of each Loan upon the Stated Maturity Date therefor. Prior thereto, the Borrower (a) may, from time to time on any Business Day, make a voluntary prepayment, in whole or in part, of the outstanding principal amount of any Loans; provided, however, that (i) 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; (ii) no such prepayment of any LIBO Rate Loan may be made on any day other than the last day of the Interest Period for such Loan, unless Borrower also pays all losses and expenses as a result of such prepayment as provided in Section 4.4; (iii) all such voluntary prepayments shall require at least three but no more than five Business Days' prior written notice to the Agent; and (iv) all such voluntary partial prepayments shall be in an aggregate minimum amount of $500,000 and an integral multiple of $500,000; (b) shall, within two Business Day's after receipt of Net Available Proceeds from (i) Asset Sales, (ii) Equity Issuances, (iii) Project Indebtedness Payments (excluding that portion of the first Project Indebtedness Payments made after the Effective Date under the Clear Lake Credit Agreement and the Cogenron Credit Agreement representing interest accrued under each of the Clear Lake Credit Agreement and the Cogenron Credit Agreement from the last -23- principal payment date under each of the Clear Lake Credit Agreement and the Cogenron Credit Agreement through the Effective Date, which amounts may be used by the Borrower to repay Calpine Subordinated Indebtedness or to pay a dividend to Calpine), or (iv) EDCC Distributions, deposit any such amounts with the Agent to be held pursuant to the Deposit and Disbursement Agreement and applied first to repayment of interest on the Loans, and then to repayment of the principal amount of the Loans, such repayment to occur (A) in the case of Base Rate Loans, on the third Business Day after receipt of such Net Available Proceeds by the Borrower, and (B) in the case of LIBO Rate Loans, on the next day or days on which amounts are payable with respect thereto without the payment of losses and expenses as described in Section 4.4; and (c) shall, immediately upon any acceleration of the Stated Maturity Date of any Loans pursuant to Section 8.2 or Section 8.3, repay all Loans, unless, pursuant to Section 8.3, only a portion of all Loans is so accelerated. Each prepayment of any Loans made pursuant to this Section shall be without premium or penalty, except as may be required by Section 4.4. SECTION 3.2. Interest Provisions. Interest on the outstanding principal amount of Loans shall accrue and be payable in accordance with this Section 3.2. SECTION 3.2.1. Rates. Pursuant to an appropriately delivered Borrowing Request or Continuation/Conversion Notice, the Borrower may elect that Loans comprising a Borrowing accrue interest at a rate per annum: (a) on that portion maintained from time to time as a Base Rate Loan, equal to the sum of the Alternate Base Rate from time to time in effect plus a margin of .75%; and (b) on that portion maintained as a LIBO Rate Loan, during each Interest Period applicable thereto, equal to the sum of the LIBO Rate (Reserve Adjusted) for such Interest Period plus a margin of 1.25%. The "LIBO Rate (Reserve Adjusted)" means, relative to any Loan to be made, continued or maintained as, or converted into, a LIBO Rate Loan for any Interest Period, a rate per annum (rounded upwards, if necessary, to the nearest 1/16 of 1%) determined pursuant to the following formula: LIBO Rate = LIBO Rate (Reserve Adjusted) 1.00 - LIBOR Reserve Percentage -24- The LIBO Rate (Reserve Adjusted) for any Interest Period for LIBO Rate Loans will be determined by the Agent on the basis of the LIBOR Reserve Percentage in effect on, and the applicable rates furnished to and received by the Agent from Scotiabank, two Business Days before the first day of such Interest Period. "LIBO Rate" means, relative to any Interest Period for LIBO Rate Loans, the rate of interest equal to the average (rounded upwards, if necessary, to the nearest 1/16 of 1%) of the rates per annum at which Dollar deposits in immediately available funds are offered to Scotiabank's LIBOR Office in the London interbank market as at or about 11:00 a.m. London time two Business Days prior to the beginning of such Interest Period for delivery on the first day of such Interest Period, and in an amount approximately equal to the amount of the LIBO Rate Loans and for a period approximately equal to such Interest Period. "LIBOR Reserve Percentage" means, relative to any Interest Period for LIBO Rate Loans, the reserve percentage (expressed as a decimal) equal to the maximum aggregate reserve requirements (including all basic, emergency, supplemental, marginal and other reserves and taking into account any transitional adjustments or other scheduled changes in reserve requirements) specified under regulations issued from time to time by the F.R.S. Board and then applicable to assets or liabilities consisting of and including "Eurocurrency Liabilities", as currently defined in Regulation D of the F.R.S. Board, having a term approximately equal or comparable to such Interest Period. All LIBO Rate Loans shall bear interest from and including the first day of the applicable Interest Period to (but not including) the last day of such Interest Period at the interest rate determined as applicable to such LIBO Rate Loan. SECTION 3.2.2. Post-Maturity Rates. After the date any principal amount of any Loan is due and payable (whether on the Stated Maturity Date, upon acceleration or otherwise), or after any other monetary Obligation of the Borrower shall have become due and payable, the Borrower shall pay, but only to the extent permitted by law, interest (after as well as before judgment) on such amounts at a rate per annum equal to the Alternate Base Rate plus a margin of 2.75%. SECTION 3.2.3. Payment Dates. Interest accrued on each Loan shall be payable, without duplication: (a) on the Stated Maturity Date therefor; (b) on the date of any payment or prepayment, in whole or in part, of principal outstanding on such Loan; -25- (c) with respect to Base Rate Loans, on each Quarterly Payment Date occurring after the Effective Date; (d) with respect to LIBO Rate Loans, the last day of each applicable Interest Period (and, if such Interest Period shall exceed 3 months, on each day which occurs during such Interest Period every three months from the first day of such Interest Period); (e) with respect to any Base Rate Loans converted into LIBO Rate Loans on a day when interest would not otherwise have been payable pursuant to clause (c), on the date of such conversion; and (f) on that portion of any Loans the Stated Maturity Date of which is accelerated pursuant to Section 8.2 or Section 8.3, immediately upon such acceleration. Interest accrued on Loans or other monetary Obligations arising under this Agreement or any other Loan Document after the date such amount is due and payable (whether on the Stated Maturity Date, upon acceleration or otherwise) shall be payable upon demand. ARTICLE IV CERTAIN LIBO RATE AND OTHER PROVISIONS SECTION 4.1. LIBO Rate Lending Unlawful. If any Lender shall determine (which determination shall, upon notice thereof to the Borrower and the Lenders, be conclusive and binding on the Borrower) that the introduction of or any change in or in the interpretation of any law makes it unlawful, or any central bank or other governmental authority asserts that it is unlawful, for such Lender to make, continue or maintain any Loan as, or to convert any Loan into, a LIBO Rate Loan, the obligations of all Lenders to make, continue, maintain or convert any such Loans shall, upon such determination, forthwith be suspended until such Lender shall notify the Agent that the circumstances causing such suspension no longer exist, and all LIBO Rate Loans shall automatically convert into Base Rate Loans at the end of the then current Interest Periods with respect thereto or sooner, if required by such law or assertion. SECTION 4.2. Deposits Unavailable. If the Agent shall have determined that (a) Dollar certificates of deposit or Dollar deposits, as the case may be, in the relevant amount and -26- for the relevant Interest Period are not available to Scotiabank in its relevant market; or (b) by reason of circumstances affecting Scotiabank's relevant market, adequate means do not exist for ascertaining the interest rate applicable hereunder to LIBO Rate Loans, then, upon notice from the Agent to the Borrower and the Lenders, the obligations of all Lenders under Section 2.2 and Section 2.3 to make or continue any Loans as, or to convert any Loans into, LIBO Rate Loans shall forthwith be suspended until the Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist. SECTION 4.3. Increased LIBO Rate Loan Costs, etc. The Borrower agrees to reimburse each Lender for any increase in the cost to such Lender of, or any reduction in the amount of any sum receivable by such Lender in respect of, making, continuing or maintaining (or of its obligation to make, continue or maintain) any Loans as, or of converting (or of its obligation to convert) any Loans into, LIBO Rate Loans as a result in any change after the Effective Date in applicable law, regulation, rule, decree or regulatory requirement or in the interpretation or application by any judicial or regulatory authority of any law, regulation, rule, decree or regulatory requirement. Such Lender shall promptly notify the Agent and the Borrower in writing of the occurrence of any such event, such notice to state, in reasonable detail, the reasons therefor and the additional amount required fully to compensate such Lender for such increased cost or reduced amount. Such additional amounts shall be payable by the Borrower directly to such Lender within five days of its receipt of such notice, and such notice shall, in the absence of manifest error, be conclusive and binding on the Borrower. SECTION 4.4. Funding Losses. In the event any Lender shall incur any loss or expense (including any loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to make, continue or maintain any portion of the principal amount of any Loan as, or to convert any portion of the principal amount of any Loan into, a LIBO Rate Loan) as a result of (a) any conversion or repayment or prepayment of the principal amount of any LIBO Rate Loans on a date other than the scheduled last day of the Interest Period applicable thereto, whether pursuant to Section 3.1 or otherwise; (b) any Loans not being made as LIBO Rate Loans in accordance with the Borrowing Request therefor; or -27- (c) any Loans not being continued as, or converted into, LIBO Rate Loans in accordance with the Continuation/ Conversion Notice therefor, then, upon the written notice of such Lender to the Borrower (with a copy to the Agent), the Borrower shall, within five days of its receipt thereof, pay directly to such Lender such amount as will (in the reasonable determination of such Lender) reimburse such Lender for such loss or expense. Such written notice (which shall include calculations in reasonable detail) shall, in the absence of manifest error, be conclusive and binding on the Borrower. SECTION 4.5. Increased Capital Costs. If any change in, or the introduction, adoption, effectiveness, interpretation, reinterpretation or phase-in of, any law or regulation, directive, guideline, decision or request (whether or not having the force of law) of any court, central bank, regulator or other governmental authority causes the amount of capital required or expected to be maintained by any Lender or any Person controlling such Lender to be increased, and such Lender determines (in its reasonable discretion) that the rate of return on its or such controlling Person's capital as a consequence of its Commitment or the Loans made by such Lender is reduced to a level below that which such Lender or such controlling Person could have achieved but for the occurrence of any such circumstance, then, in any such case upon notice from time to time by such Lender to the Borrower, the Borrower shall immediately pay directly to such Lender additional amounts sufficient to compensate such Lender or such controlling Person for such reduction in rate of return. A statement of such Lender as to any such additional amount or amounts (including calculations thereof in reasonable detail) shall, in the absence of manifest error and if made in good faith, be conclusive and binding on the Borrower. In determining such amount, such Lender may use any method of averaging and attribution that it (in its good faith discretion) shall deem applicable. SECTION 4.6. Taxes. All payments by the Borrower of principal of, and interest on, the Loans and all other amounts payable hereunder shall be made free and clear of and without deduction for any present or future income, excise, stamp or franchise taxes and other taxes, fees, duties, withholdings or other charges of any nature whatsoever imposed by any taxing authority, but excluding franchise taxes and taxes imposed on or measured by any Lender's net income or receipts (such non- excluded items being called "Taxes"). In the event that any withholding or deduction from any payment to be made by the Borrower hereunder is required in respect of any Taxes pursuant to any applicable law, rule or regulation, then the Borrower will -28- (a) pay directly to the relevant authority the full amount required to be so withheld or deducted; (b) promptly forward to the Agent an official receipt or other documentation satisfactory to the Agent evidencing such payment to such authority; and (c) pay to the Agent for the account of the Lenders such additional amount or amounts as is necessary to ensure that the net amount actually received by each Lender will equal the full amount such Lender would have received had no such withholding or deduction been required. Moreover, if any Taxes are directly asserted against the Agent or any Lender with respect to any payment received by the Agent or such Lender hereunder, the Agent or such Lender may pay such Taxes and the Borrower will promptly pay such additional amounts (including any penalties, interest or expenses) as is necessary in order that the net amount received by such person after the payment of such Taxes (including any Taxes on such additional amount) shall equal the amount such person would have received had not such Taxes been asserted. If the Borrower fails to pay any Taxes when due to the appropriate taxing authority or fails to remit to the Agent, for the account of the respective Lenders, the required receipts or other required documentary evidence, the Borrower shall indemnify the Lenders for any incremental Taxes, interest or penalties that may become payable by any Lender as a result of any such failure. For purposes of this Section 4.6, a distribution hereunder by the Agent or any Lender to or for the account of any Lender shall be deemed a payment by the Borrower. Upon the request of the Borrower or the Agent, each Lender that is organized under the laws of a jurisdiction other than the United States shall, prior to the due date of any payments under the Notes, execute and deliver to the Borrower and the Agent, on or about the first scheduled payment date in each Fiscal Year, one or more (as the Borrower or the Agent may reasonably request) United States Internal Revenue Service Forms 4224 or Forms 1001 or such other forms or documents (or successor forms or documents), appropriately completed, as may be applicable to establish the extent, if any, to which a payment to such Lender is exempt from withholding or deduction of Taxes. SECTION 4.7. Payments, Computations, etc. Unless otherwise expressly provided, all payments by the Borrower pursuant to this Agreement, the Notes or any other Loan Document shall be made by the Borrower to the Agent for the pro rata account of the Lenders entitled to receive such payment. All such payments required to be made to the Agent shall be made, -29- without setoff, deduction or counterclaim, not later than 11:00 a.m., San Francisco time, on the date due, in same day or immediately available funds, to such account as the Agent shall specify from time to time by notice to the Borrower. Funds received after that time shall be deemed to have been received by the Agent on the next succeeding Business Day. The Agent shall promptly remit in same day funds to each Lender its share, if any, of such payments received by the Agent for the account of such Lender. All interest and fees shall be computed on the basis of the actual number of days (including the first day but excluding the last day) occurring during the period for which such interest or fee is payable over a year comprised of 360 days (or, in the case of interest on a Base Rate Loan (other than when calculated with respect to the Federal Funds Rate), 365 days or, if appropriate, 366 days). Whenever any payment to be made shall otherwise be due on a day which is not a Business Day, such payment shall (except as otherwise required by clause (c) of the definition of the term "Interest Period" with respect to LIBO Rate Loans) be made on the next succeeding Business Day and such extension of time shall be included in computing interest and fees, if any, in connection with such payment. SECTION 4.8. Sharing of Payments. If any Lender shall obtain any payment or other recovery (whether voluntary, involuntary, by application of setoff or otherwise) on account of any Loan (other than pursuant to the terms of Sections 4.3, 4.4 and 4.5) in excess of its pro rata share of payments then or therewith obtained by all Lenders, such Lender shall purchase from the other Lenders such participations in Loans made by them as shall be necessary to cause such purchasing Lender to share the excess payment or other recovery ratably with each of them; provided, however, that if all or any portion of the excess payment or other recovery is thereafter recovered from such purchasing Lender, the purchase shall be rescinded and each Lender which has sold a participation to the purchasing Lender shall repay to the purchasing Lender the purchase price to the ratable extent of such recovery together with an amount equal to such selling Lender's ratable share (according to the proportion of (a) the amount of such selling Lender's required repayment to the purchasing Lender to (b) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Borrower agrees that any Lender so purchasing a participation from another -30- Lender pursuant to this Section may, to the fullest extent permitted by law, exercise all its rights of payment with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation. If under any applicable bankruptcy, insolvency or other similar law, any Lender receives a secured claim in lieu of a setoff to which this Section applies, such Lender shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Lenders entitled under this Section to share in the benefits of any recovery on such secured claim. SECTION 4.9. Actions of Affected Lenders. Each Lender agrees to use reasonable efforts (including reasonable efforts to change the booking office for its Loans) to avoid or minimize any illegality pursuant to Section 4.1 or any amounts which might otherwise be payable pursuant to Sections 4.3 or 4.5; provided, however, that such efforts shall not cause the imposition on such Lender of any additional costs or legal or regulatory burdens deemed by such Lender to be material. In the event that such reasonable efforts are insufficient to avoid all such illegality or all amounts that might be payable pursuant to Sections 4.3 or 4.5, then the Borrower may request such Lender (the "Affected Lender") to transfer its Commitments hereunder to any other Lender (which itself is not then an Affected Lender) or financial institution designated by the Borrower; provided, however, that such transfer shall not cause the imposition on such Affected Lender of additional costs or legal or regulatory burdens deemed by such Affected Lender to be material. SECTION 4.10. Use of Proceeds. The Borrower shall apply the proceeds of each Borrowing in accordance with the tenth recital; without limiting the foregoing, no proceeds of any Loan will be used to acquire any equity security of a class which is registered pursuant to Section 12 of the Securities Exchange Act of 1934 or any "margin stock", as defined in F.R.S. Board Regulation U. ARTICLE V CONDITIONS TO BORROWING SECTION 5.1. Initial Borrowing. The obligations of the Lenders to fund the initial Borrowing shall be subject to the prior or concurrent satisfaction of each of the conditions precedent set forth in this Section 5.1. SECTION 5.1.1. Stock Purchase Consummated. The conditions set forth in Section 6.1 of the Purchase Agreement to the obligations of the Borrower to consummate the Stock Purchase -31- shall have been satisfied in full (without amendment or waiver of, or other forbearance to exercise any rights with respect to, any of the terms or provisions thereof by the Borrower, except as approved in writing by the Agent), and the Stock Purchase shall have been consummated in accordance with Article VI of the Purchase Agreement for an aggregate base purchase price (excluding related fees and expenses and any post-closing adjustments under the Purchase Agreement) not greater than $35,450,000. SECTION 5.1.2. Debt Acquisitions Consummated. The Debt Acquisitions shall have been consummated for a purchase price of not greater than $52,999,300 (plus accrued interest) for the Cogenron Debt Acquisition and of not greater than $102,622,665 (plus accrued interest) for the Clear Lake Debt Acquisition, and transaction fees and expenses for the Transaction shall not have exceeded $3,500,000; and all Liens securing payment of any such Indebtedness have been assigned to the Borrower and the Borrower shall have received all Uniform Commercial Code Form UCC-2 assignment statements or other instruments as may be suitable or appropriate in connection therewith. SECTION 5.1.3. Consents. Cogenron, Clear Lake and, except as set forth in Item 5.1.3 of the Disclosure Schedule, each other party to any Project Loan Document (other than any lender or agent thereunder) shall have consented to the assignment of such Project Loan Documents to the Borrower and there shall be no prohibition on the Borrower further assigning such Project Loan Documents to the Agent. Except as set forth in Item 5.1.3 of the Disclosure Schedule, there shall be no prohibition of any assignment of any Project Document to the Borrower (or further assignment from the Borrower to the Agent) as collateral for the obligations under the Project Loan Documents. SECTION 5.1.4. Government Approvals. All governmental approvals necessary in connection with the Transaction, the financing contemplated by this Agreement, and the continuing operations of the Borrower and its Subsidiaries shall have been obtained and be in full force and effect, and all applicable waiting periods shall have expired without any action being taken or threatened by any competent authority which would restrain, prevent or otherwise impose adverse conditions on the Transaction or the financing contemplated by this Agreement. SECTION 5.1.5. Project Swap Agreements. Arrangements satisfactory to the Agent shall have been made with respect to the Project Swap Agreements. SECTION 5.1.6. Calpine Equity Contribution. The Calpine Equity Contribution shall have been consummated and the Borrower -32- shall have received Net Available Proceeds therefrom of at least $35,425,000. SECTION 5.1.7. Calpine Subordinated Indebtedness. The Borrower shall have received at least $32,575,000 of cash proceeds from issuance of the Calpine Subordinated Indebtedness; provided, however, that such amount shall be increased on a dollar for dollar basis to the extent that the Purchase Price (as defined in the Purchase Agreement) is increased pursuant to Section 2.3(B) of the Purchase Agreement. SECTION 5.1.8. Resolutions, etc. The Agent shall have received from each Obligor a certificate, dated the date of the initial Borrowing, of its Secretary or Assistant Secretary as to (a) resolutions of its Board of Directors then in full force and effect authorizing the execution, delivery and performance of this Agreement, the Notes and each other Loan Document to be executed by it; and (b) the incumbency and signatures of those of its officers authorized to act with respect to this Agreement, the Notes and each other Loan Document executed by it, upon which certificate each Lender may conclusively rely until it shall have received a further certificate of the Secretary of such Obligor canceling or amending such prior certificate. SECTION 5.1.9. Delivery of Notes. The Agent shall have received, for the account of each Lender, its Note duly executed and delivered by the Borrower. SECTION 5.1.10. Pledge Agreement. The Agent shall have received executed counterparts of the Pledge Agreement, dated as of the date hereof, duly executed by the Borrower, together with the certificates evidencing all of the issued and outstanding shares of capital stock pledged pursuant to the Pledge Agreement, which certificates shall in each case be accompanied by undated stock powers duly executed in blank. SECTION 5.1.11. Deposit and Disbursement Agreement. The Agent shall have received the Deposit and Disbursement Agreement, dated the date hereof, duly executed by the Borrower. SECTION 5.1.12. Security Agreements. The Agent shall have received executed counterparts of the Security Agreements, dated as of the date hereof, duly executed by the Borrower, together with (a) acknowledgment copies of properly filed Uniform Commercial Code financing statements (Form UCC-1), dated a -33- date reasonably near to the date of the initial Borrowing, or such other evidence of filing as may be acceptable to the Agent, naming the Borrower as the debtor and the Agent as the secured party, or other similar instruments or documents, filed under the Uniform Commercial Code of all jurisdictions as may be necessary or, in the opinion of the Agent, desirable to perfect the security interest of the Agent pursuant to the Security Agreements; (b) executed copies of proper Uniform Commercial Code Form UCC-3 termination statements, if any, necessary to release all Liens and other rights of any Person in any collateral described in the Security Agreements previously granted by any Person; and (c) 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 Agent, dated a date reasonably near to the date of the initial Borrowing, listing all effective financing statements which name the Borrower (under its present name and any previous names) as the debtor and which are filed in the jurisdictions in which filings were made pursuant to clause (a) above, together with copies of such financing statements (none of which (other than those described in clause (a), if such Form UCC-11 or search report, as the case may be, is current enough to list such financing statements described in clause (a)) shall cover any collateral described in the Security Agreements). SECTION 5.1.13. Subordination Agreement. The Agent shall have received the Subordination Agreement, in form and substance satisfactory to the Agent, from Calpine in respect of the Calpine Subordinated Indebtedness. SECTION 5.1.14. Opinions of Counsel. The Agent shall have received opinions, dated the date of the initial Borrowing and addressed to the Agent and all Lenders, from Joseph E. Ronan, Jr., Washburn, Briscoe and McCarthy and Brobeck, Phleger & Harrison, counsel to the Obligors, substantially in the form of Exhibit J hereto. SECTION 5.1.15. Purchase Documents. The Agent shall have received a copy of the Purchase Documents and any supplements or amendments thereto, certified by the Borrower as of the Effective Date as being true, complete and correct and in full force and effect. SECTION 5.1.16. Project Documents and Project Loan Documents. The Agent shall have received copies of each Project Document and Project Loan Documents and any supplements or -34- amendments thereto, certified by the Borrower as of the Effective Date as being true, complete and correct and in full force and effect. SECTION 5.1.17. Projections. The Agent shall have received the Financial Projections, in form and substance satisfactory to the Agent, from the Borrower. SECTION 5.1.18. Insurance Certificates. The Agent shall have received copies of certificates of insurance signed by a broker of nationally recognized standing certifying that all insurance policies required under Section 7.1.4 are in full force and effect and comply in all material respects with the requirements of such section. SECTION 5.1.19. Independent Engineer's Report. The Agent shall have received the report of the Independent Engineer with respect to the performance and operation of the Projects, in form and substance satisfactory to the Agent. SECTION 5.1.20. Financial Statements. The Agent shall have received and approved the financial statements described in Section 6.5 hereof. In addition, the Agent shall have received a pro-forma opening consolidated balance sheet of the Borrower as of the Effective Date, giving effect to the Transaction, which balance sheet shall be satisfactory in all respects to the Agent. SECTION 5.1.21. Loan Purchase Agreement. The Agent shall have received the Loan Purchase Agreement, dated the date hereof, duly executed by Calpine and the Borrower. SECTION 5.1.22. Indemnification Agreement. The Agent shall have received the Indemnification Agreement, dated the date hereof, duly executed by Calpine. SECTION 5.1.23. Due Diligence. The Agent shall have satisfactorily completed its legal and financial due diligence review of the assets, properties, facilities, business and operations of EDCC, Cogenron and Clear Lake and the assets, properties and facilities constituting the Projects. SECTION 5.1.24. Closing Fees, Expenses, etc. The Agent shall have received for its own account, or for the account of each Lender, as the case may be, all fees, costs and expenses due and payable pursuant to Sections 10.3 if then invoiced and any amounts then owing pursuant to any fee letters among the parties. SECTION 5.2. All Borrowings. The obligation of each Lender to fund any Loan on the occasion of any Borrowing (including the initial Borrowing) shall be subject to the -35- satisfaction of each of the conditions precedent set forth in this Section 5.2. SECTION 5.2.1. Compliance with Warranties, No Default, etc. Both before and after giving effect to any Borrowing (but, if any Default of the nature referred to in Section 8.1.5 shall have occurred with respect to any other Indebtedness, without giving effect to the application, directly or indirectly, of the proceeds thereof) the following statements shall be true and correct (a) the representations and warranties set forth in Article VI (excluding, however, those contained in Section 6.7) shall be true and correct with the same effect as if then made (unless stated to relate solely to an early date, in which case such representations and warranties shall be true and correct as of such earlier date); (b) except as disclosed by the Borrower to the Agent and the Lenders pursuant to Section 6.7 (i) no labor controversy, litigation, arbitration or governmental investigation or proceeding shall be pending or, to the knowledge of the Borrower, threatened against the Borrower or any of its Subsidiaries which has or may reasonably be expected to have a Material Adverse Effect or which purports to materially and adversely affect the legality, validity or enforceability of this Agreement, the Notes or any other Loan Document, or of the Purchase Documents; and (ii) no development shall have occurred in any labor controversy, litigation, arbitration or governmental investigation or proceeding disclosed pursuant to Section 6.7 which has or may reasonably be expected to have a Material Adverse Effect; and (c) no Default shall have then occurred and be continuing, and neither the Borrower nor any of its Subsidiaries are in violation of any law or governmental regulation or court order or decree which would reasonably be expected to result in a Material Adverse Effect. SECTION 5.2.2. Borrowing Request. The Agent shall have received a Borrowing Request for such Borrowing. Each of the delivery of a Borrowing Request and the acceptance by the Borrower of the proceeds of such Borrowing shall constitute a representation and warranty by the Borrower that on the date of such Borrowing (both immediately before and after giving effect -36- to such Borrowing and the application of the proceeds thereof) the statements made in Section 5.2.1 are true and correct. SECTION 5.2.3. Satisfactory Legal Form. All documents executed or submitted pursuant hereto by or on behalf of the Borrower or any of its Subsidiaries or any other Obligor shall be satisfactory in form and substance to the Agent and its counsel; the Agent and its counsel shall have received all information, approvals, opinions, documents or instruments as the Agent or its counsel may reasonably request. ARTICLE VI REPRESENTATIONS AND WARRANTIES In order to induce the Lenders and the Agent to enter into this Agreement and to make Loans hereunder, the Borrower represents and warrants unto the Agent and each Lender as set forth in this Article VI. SECTION 6.1. Organization, etc. The Borrower and each of its Subsidiaries is a corporation or partnership validly organized and existing and in good standing under the laws of the State of its formation, is duly qualified to do business and is in good standing as a foreign corporation or partnership in each jurisdiction where the nature of its business requires such qualification, and has full power and authority and holds all requisite governmental licenses, permits and other approvals to enter into and perform its Obligations under this Agreement, the Notes and each other Loan Document to which it is a party and to own and hold under lease its property and to conduct its business substantially as currently conducted by it. SECTION 6.2. Due Authorization, Non-Contravention, etc. The execution, delivery and performance by the Borrower of this Agreement, the Notes and each other Loan Document executed or to be executed by it, and the execution, delivery and performance by each other Obligor of each Loan Document executed or to be executed by it and the Borrower's and each such other Obligor's participation in the consummation of the Transaction are within the Borrower's and each such Obligor's corporate powers, have been duly authorized by all necessary corporate action, and do not (a) contravene the Borrower's or any such Obligor's Organic Documents; (b) contravene any contractual restriction, law or governmental regulation or court decree or order binding on or affecting the Borrower or any such Obligor; or -37- (c) result in, or require the creation or imposition of, any Lien on any of any Obligor's properties, other than Liens permitted under Section 7.2.3(a). SECTION 6.3. Government Approval, Regulation, etc. No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or other Person is required for the due execution, delivery or performance by the Borrower or any other Obligor of this Agreement, the Notes or any other Loan Document to which it is a party, or for the Borrower's and each such other Obligor's participation in the consummation of the Transaction, except for the filings required under the Hart-Scott-Rodino Antitrust Improvement Act of 1976 (the "HSR Act"), and the consents and approvals listed in Schedules 4.1.3 and 4.1.7 attached to the Purchase Agreement, all of which have been duly obtained or made and are in full force and effect. Neither the Borrower nor any of its Subsidiaries is an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or is subject to regulation as a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. SECTION 6.4. Validity, etc. This Agreement constitutes, and the Notes and each other Loan Document executed by the Borrower will, on the due execution and delivery thereof, constitute, the legal, valid and binding obligations of the Borrower enforceable in accordance with their respective terms, except as enforceability may be subject to or limited by (i) bankruptcy, insolvency, reorganization, arrangement, moratorium or other similar laws affecting the rights of creditors or (ii) general principles of equity, including the possible unavailability of specific performance or injunctive relief; and each Loan Document executed pursuant hereto by each other Obligor will, on the due execution and delivery thereof by such Obligor, be the legal, valid and binding obligation of such Obligor enforceable in accordance with its terms, except as enforceability may be subject to or limited by (i) bankruptcy, insolvency, reorganization, arrangement, moratorium or other similar laws affecting the rights of creditors or (ii) general principles of equity, including the possible unavailability of specific performance or injunctive relief. SECTION 6.5. Financial Information. The (i) balance sheet of the Borrower, (ii) consolidated balance sheet of EDCC and each of its Subsidiaries, (iii) balance sheet of Clear Lake, and (iv) balance sheet of Cogenron, each as at December 31, 1996 (except for the balance sheet of Borrower, which shall be prepared on a proforma basis as of the Effective Date), and the related -38- statements of earnings and cash flow (for all such entities except the Borrower), copies of which have been furnished to the Agent and each Lender, have been prepared in accordance with GAAP consistently applied, and present fairly the consolidated financial condition of the Persons covered thereby as at the dates thereof and the results of their operations for the periods then ended. On and as of the Effective Date, the Borrower has no Indebtedness, other than (i) indebtedness incurred hereunder and (ii) Calpine Subordinated Indebtedness. SECTION 6.6. No Material Adverse Change. Since the date of the financial statements described in Section 6.5 through the Effective Date, there has been no material adverse change in the financial condition, operations, assets, business, properties or prospects of the Borrower and its Subsidiaries, except as reflected in the Financial Projections. SECTION 6.7. Litigation, Labor Controversies, etc. There is no pending or, to the knowledge of the Borrower, threatened litigation, action, proceeding, or labor controversy affecting the Borrower or any of its Subsidiaries, or any of their respective properties, businesses, assets or revenues, which may materially adversely affect the financial condition, operations, assets, business, properties or prospects of the Borrower or any Subsidiary or which purports to affect the legality, validity or enforceability of this Agreement, the Notes or any other Loan Document, except as disclosed in Item 6.7 ("Litigation") of the Disclosure Schedule. SECTION 6.8. Subsidiaries. The Borrower has no Subsidiaries, except EDCC, EC1, Cogenron, EC3, Clear Lake and EC5. EDCC has no Subsidiaries other than EC1, Cogenron, EC3, Clear Lake and EC5. EC5 has a 7.06% equity investment in Cogen Venture. SECTION 6.9. Ownership of Properties. The Borrower and each of its Subsidiaries owns good and marketable title to all of its properties and assets, real and personal, tangible and intangible, of any nature whatsoever (including patents, trademarks, trade names, service marks and copyrights), free and clear of all Liens, charges or claims (including infringement claims with respect to patents, trademarks, copyrights and the like) except as permitted pursuant to Section 7.2.3. SECTION 6.10. Taxes. The Borrower and each of its Subsidiaries has filed all tax returns and reports required by law to have been filed by it and has paid all taxes and governmental charges thereby shown to be owing, except any such taxes or charges which are being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books. -39- SECTION 6.11. Pension and Welfare Plans. The Borrower has never maintained a Pension Plan or a Welfare Plan. SECTION 6.12. Environmental Warranties. Except as set forth in Item 6.12 ("Environmental Matters") of the Disclosure Schedule: (a) all facilities and property (including underlying groundwater) owned or leased by the Borrower or any of its Subsidiaries have been, and continue to be, owned or leased by the Borrower and its Subsidiaries in material compliance with all Environmental Laws; (b) there are no pending or threatened (i) claims, complaints, notices or requests for information received by the Borrower or any of its Subsidiaries with respect to any alleged violation of any Environmental Law which have not been resolved or settled, or (ii) complaints, notices or inquiries to the Borrower or any of its Subsidiaries regarding potential liability under any Environmental Law which have not been resolved or settled; (c) there have been no unremediated Releases of Hazardous Materials at, on or under any property now owned or leased by the Borrower or any of its Subsidiaries that, singly or in the aggregate, have, or may reasonably be expected to have, a Material Adverse Effect; (d) the Borrower and its Subsidiaries have been issued and are in material compliance with all permits, certificates, approvals, licenses and other authorizations relating to environmental matters and necessary for their businesses; (e) no property now owned or leased by the Borrower or any of its Subsidiaries is listed or proposed for listing (with respect to owned property only) on the National Priorities List pursuant to CERCLA, on the CERCLIS or on any similar state list of sites requiring investigation or clean-up; (f) there are no underground storage tanks, active or abandoned, including petroleum storage tanks, on or under any property now owned or leased by the Borrower or any of its Subsidiaries that, singly or in the aggregate, have, or may reasonably be expected to have, a Material Adverse Effect; -40- (g) neither Borrower nor any Subsidiary of the Borrower has directly transported or directly arranged for the transportation of any Hazardous Material except in compliance with applicable Environmental Laws; (h) there are no polychlorinated biphenyls or friable asbestos present at any property now owned or leased by the Borrower or any Subsidiary of the Borrower that, singly or in the aggregate, have, or may reasonably be expected to have, a Material Adverse Effect; and (i) no conditions exist at, on or under any property now owned or leased by the Borrower which, with the passage of time, or the giving of notice or both, would give rise to liability under any Environmental Law which has or may reasonably be expected to have a Material Adverse Effect. For avoidance of doubt, properties acquired as a result of the Transaction shall be considered "now owned". SECTION 6.13. Regulations G, U and X. The Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock, and no proceeds of any Loans will be used for a purpose which violates, or would be inconsistent with, F.R.S. Board Regulation G, U or X. Terms for which meanings are provided in F.R.S. Board Regulation G, U or X or any regulations substituted therefor, as from time to time in effect, are used in this Section with such meanings. SECTION 6.14. Accuracy of Information. All factual information heretofore or contemporaneously furnished by or on behalf of the Borrower in writing to the Agent or any Lender for purposes of or in connection with this Agreement or any transaction contemplated hereby (including copies of the Purchase Documents and the Project Documents, true and complete copies of which were furnished to the Agent and each Lender in connection with their execution and delivery hereof, but excluding any information contained in the Financial Projections), true and complete copies of which were furnished to the Agent and each Lender in connection with its execution and delivery hereof, is, and all other such factual information hereafter furnished by or on behalf of the Borrower to the Agent or any Lender will be, true and accurate in every material respect on the date as of which such information is dated or certified and as of the date of execution and delivery of this Agreement by the Agent and such Lender, and such information is not, or shall not be, as the case may be, incomplete by omitting to state any material fact necessary to make such information not misleading. SECTION 6.15. Financial Projections. The Borrower believes that the Financial Projections represent the Borrower's -41- most likely estimate, as of the date of the Financial Projections, of the projected results of operations of Clear Lake and Cogenron for the periods covered thereby, and, as such, were prepared by the Borrower in good faith, and, to the best of the Borrower's knowledge, are based upon reasonable assumptions and are complete in all material respects. The Borrower is not aware of any facts or existing conditions that would require any material change in the Financial Projections. SECTION 6.16. Collateral Security Documents. Upon their execution and delivery, the Collateral Security Documents will be effective to create, in favor of the Agent on behalf of the Lenders, legal, valid and enforceable Liens on and security interests in the Collateral. Prior to or simultaneously with the Closing Date, all necessary and appropriate recordings and filings will have been duly effected in all appropriate public offices so that each of the Collateral Security Documents will constitute a valid and perfected first Lien on and first perfected security interest in all right, title, estate and interest of the Borrower in and to such portion of the Collateral described in such Collateral Security Document. The recordings and filings shown on Schedule 2 are all the recordings, filings and other action necessary or appropriate in order to establish, protect and perfect such first Lien on and security interest in the Borrower's right, title and interest in the Collateral. The descriptions of the Collateral set forth in the Collateral Security Documents are true, complete, and accurate in all respects and are adequate for the purpose of establishing, preserving, perfecting and protecting such first Lien on and security interest in Borrower's right, title and interest in the Collateral. SECTION 6.17. Principal Place of Business, etc. The principal place of business and chief executive office of the Borrower and the office where the Borrower keeps its records concerning the Projects, the Collateral and all Basic Documents, is located at 50 West San Fernando Avenue, San Jose, California 95113. SECTION 6.18. Representations and Warranties Incorporated from Purchase Agreement. Each of the representations and warranties given by each of Seller and the Borrower in the Purchase Agreement is true and correct in all material respects as of the Effective Date, and such representations and warranties are hereby incorporated herein by this reference with the same effect as though set forth in their entirety herein, subject to the qualifications thereto set forth in the Purchase Agreement. ARTICLE VII -42- COVENANTS SECTION 7.1. Affirmative Covenants. The Borrower agrees with the Agent and each Lender that, until all Commitments have terminated and all Obligations have been paid and performed in full, the Borrower will perform the obligations set forth in this Section 7.1. SECTION 7.1.1. Financial Information, Reports, Notices, etc. The Borrower will furnish, or will cause to be furnished, to each Lender and the Agent copies of the following financial statements, reports, notices and information: (a) as soon as available and in any event within 60 days after the end of each of the first three Fiscal Quarters of each Fiscal Year of the Borrower, a balance sheet of the Borrower and consolidated and consolidating balance sheets of EDCC and its Subsidiaries (as to EC1, EC3 and EC5, only to the extent otherwise available) as of the end of such Fiscal Quarter and a statement of earnings and cash flow of the Borrower and consolidated and consolidating statements of earnings and cash flow of EDCC and its Subsidiaries (as to EC1, EC3 and EC5, only to the extent otherwise available) for such Fiscal Quarter and for the period commencing at the end of the previous Fiscal Year and ending with the end of such Fiscal Quarter, certified by the chief financial Authorized Officer of the Borrower or EDCC, as applicable; (b) as soon as available and in any event within 120 days after the end of each Fiscal Year of the Borrower, a copy of the annual audit report for such Fiscal Year for the Borrower and for EDCC and its Subsidiaries (as to EC1, EC3 and EC5, only to the extent otherwise available), including therein a balance sheet of the Borrower and consolidated and consolidating balance sheets of EDCC and its Subsidiaries (as to EC1, EC3 and EC5, only to the extent otherwise available) as of the end of such Fiscal Year and a statement of earnings and cash flow of the Borrower and consolidated and consolidating statements of earnings and cash flow of EDCC and its Subsidiaries (as to EC1, EC3 and EC5, only to the extent otherwise available) for such Fiscal Year, in each case certified (without any Impermissible Qualification, except as approved by the Agent in writing) in a manner acceptable to the Agent and the Required Lenders by Arthur Andersen & Company or other independent public accountants acceptable to the Agent and the Required Lenders; (c) as soon as available and in any event within 45 days after the end of each Fiscal Quarter, a certificate, -43- executed by the chief financial Authorized Officer of the Borrower, showing (in reasonable detail and with appropriate calculations and computations in all respects satisfactory to the Agent) compliance with the financial covenants set forth in Section 7.2.4.; (d) as soon as possible and in any event within three days after the Borrower obtains knowledge of each Default, a statement of an Authorized Officer of the Borrower setting forth details of such Default and the action which the Borrower has taken and proposes to take with respect thereto; (e) as soon as possible and in any event within three days after (x) the Borrower obtains knowledge of any adverse development with respect to any litigation, action, proceeding, or labor controversy described in Section 6.7 or (y) the commencement of any labor controversy, litigation, action, proceeding of the type described in Section 6.7, notice thereof and copies of all documentation relating thereto; (f) promptly after the sending or filing thereof, copies of all reports which the Borrower sends to any of its securityholders, and all reports and registration statements which the Borrower or any of its Subsidiaries files with the Securities and Exchange Commission or any national securities exchange; (g) immediately upon becoming aware of the institution of any steps by the Borrower or any other Person to terminate any Pension Plan, or the failure to make a required contribution to any Pension Plan if such failure is sufficient to give rise to a Lien under section 302(f) of ERISA, or the taking of any action with respect to a Pension Plan which could result in the requirement that the Borrower furnish a bond or other security to the PBGC or such Pension Plan, or the occurrence of any event with respect to any Pension Plan which could result in the incurrence by the Borrower of any material liability, fine or penalty, or any material increase in the contingent liability of the Borrower with respect to any post- retirement Welfare Plan benefit, notice thereof and copies of all documentation relating thereto; (h) information and notices which the Borrower receives in its capacity as agent or lender under the Project Loan Documents; and (i) such other information respecting the condition or operations, financial or otherwise, of the Borrower or -44- any of its Subsidiaries as any Lender through the Agent may from time to time reasonably request and which the Borrower is legally or contractually permitted to provide to such Lender. SECTION 7.1.2. Compliance with Laws, etc. The Borrower will, and will cause each of its Subsidiaries to, comply in all material respects with all applicable laws, rules, regulations and orders, such compliance to include (without limitation): (a) the maintenance and preservation of its corporate existence and qualification as a foreign corporation; and (b) the payment, before the same become delinquent, of all taxes, assessments and governmental charges imposed upon it or upon its property except to the extent being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books. SECTION 7.1.3. Maintenance of Properties. The Borrower will, and will cause each of its Subsidiaries to, maintain, preserve, protect and keep its properties in good repair, working order and condition, and make necessary and proper repairs, renewals and replacements so that its business carried on in connection therewith may be properly conducted at all times unless the Borrower determines in good faith that the continued maintenance of any of its properties is no longer economically desirable. SECTION 7.1.4. Insurance. The Borrower will, and will cause each of its Subsidiaries to, maintain or cause to be maintained with responsible insurance companies insurance with respect to its properties and business (including business interruption insurance) against such casualties and contingencies and of such types and in such amounts as is customary in the case of similar businesses and will, upon request of the Agent, furnish to each Lender at reasonable intervals a certificate of an Authorized Officer of the Borrower setting forth the nature and extent of all insurance maintained by the Borrower and its Subsidiaries in accordance with this Section. SECTION 7.1.5. Books and Records. The Borrower will, and will cause each of its Subsidiaries to, keep books and records which accurately reflect all of its business affairs and transactions and permit the Agent and each Lender or any of their respective representatives, at reasonable times and intervals, to visit all of its offices, to discuss its financial matters with its officers and independent public accountant (and the Borrower hereby authorizes such independent public accountant to discuss the Borrower's financial matters with each Lender or its -45- representatives whether or not any representative of the Borrower is present) and to examine (and, at the expense of the Borrower, photocopy extracts from) any of its books or other corporate records. The Borrower shall pay any fees of one such independent public accountant incurred in connection with the Agent's or any Lender's exercise of its rights pursuant to this Section; provided, however, after the occurrence and during the continuance of any Default, the Borrower shall pay for all fees of such independent accountants incurred with each exercise by the Agent of its rights pursuant to this Section. SECTION 7.1.6. Environmental Covenant. The Borrower will, and will cause each of its Subsidiaries to, (a) use and operate all of its facilities and properties in material compliance with all Environmental Laws, keep all necessary permits, approvals, certificates, licenses and other authorizations relating to environmental matters in effect and remain in material compliance therewith, and handle all Hazardous Materials in material compliance with all applicable Environmental Laws; (b) immediately notify the Agent and provide copies upon receipt of all written claims, complaints, notices or inquiries relating to the condition of its facilities and properties or compliance with Environmental Laws, and shall promptly cure and have dismissed with prejudice to the satisfaction of the Agent any actions and proceedings relating to compliance with Environmental Laws; and (c) provide such information and certifications which the Agent may reasonably request from time to time to evidence compliance with this Section 7.1.6. SECTION 7.1.7. Resist Regulatory Change. If the Borrower becomes aware that any federal, state, or local entity having jurisdiction over the Projects or its operations has issued any order, judgment, regulation, or decision the effect of which is to rescind, terminate, repeal, invalidate, suspend, enjoin, amend, or modify any of the Project Documents or any Governmental Approval or any part of either thereof, and there shall exist a reasonable possibility that such regulatory change will have a Material Adverse Effect, the Borrowers shall give the Agent notice thereof and shall, or shall cause its Subsidiaries to, diligently and in a timely fashion (i) make all filings, (ii) pursue all remedies and appeals, and (iii) take such other lawful action, in each case as shall be necessary or desirable (a) to prevent such regulatory change from becoming final and nonappealable or otherwise irrevocable, (b) to postpone the effectiveness of such regulatory change, and (c) to cause such regulatory change to be revoked or amended or modified so as to -46- eliminate the reasonable possibility of such material adverse effect. SECTION 7.1.8. Take-Out Financing; Assignments. The Borrower shall use all reasonable efforts to arrange for and obtain debt or equity financing sufficient to repay all loans by not later than the Stated Maturity Date, and upon obtaining such financing, shall repay the Loans. The Borrower shall use all reasonable efforts to obtain (i) assignments of all Project Documents listed on Item 5.1.3 of the Disclosure Schedule as collateral for the obligations under the Project Loan Documents, (ii) consents to such assignment from the parties to such Project Documents (other than Clear Lake and Cogenron) in a customary form for project financing transactions and (iii) amendments to or separate agreements relating to any Project Documents or Project Loan Documents requiring Calpine to maintain ownership of the Borrower which modify such ownership requirement in a manner which will enable the Agent and the Lenders to foreclose their security interest in the stock of the Borrower under the Pledge Agreement. SECTION 7.2. Negative Covenants. The Borrower agrees with the Agent and each Lender that, until all Commitments have terminated and all Obligations have been paid and performed in full, the Borrower will perform the obligations set forth in this Section 7.2. SECTION 7.2.1. Business Activities. The Borrower will not, and will not permit any of its Subsidiaries to, engage in any business activity other than acting as equity investor in EDCC and project lender to Cogenron and Clear Lake, investing (directly or indirectly) in Cogenron or Clear Lake and owning the Projects, and such activities as may be incidental thereto. SECTION 7.2.2. Indebtedness. The Borrower will not, and will not permit any of its Subsidiaries to, create, incur, assume or suffer to exist or otherwise become or be liable in respect of any Indebtedness, other than, without duplication, the following: (a) Indebtedness in respect of the Loans and other Obligations; (b) unsecured Indebtedness incurred in the ordinary course of business (including open accounts extended by suppliers on normal trade terms in connection with purchases of goods and services, but excluding Indebtedness incurred through the borrowing of money or Contingent Liabilities); (c) Calpine Subordinated Indebtedness in a principal amount not to exceed $40,000,000 plus any amounts which the -47- Borrower provides to EDCC under the Equity Support Agreements; (d) Indebtedness of Cogenron to the Borrower in a principal amount not to exceed $52,999,300; (e) Indebtedness of Clear Lake to the Borrower in a principal amount not to exceed $102,622,665; (f) Clear Lake Subordinated Indebtedness in a principal amount not to exceed $30,000,000; and (g) Indebtedness of the Borrower to a Subsidiary (other than EC5) of the Borrower, of a Subsidiary (other than EC5) of the Borrower to the Borrower, or of a Subsidiary (other than EC5) of the Borrower to another Subsidiary (other than EC5) of the Borrower, in each case subordinated to the Obligations on terms and condition reasonably satisfactory to the Agent. SECTION 7.2.3. Liens. The Borrower will not, and will not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon any of its property, revenues or assets, whether now owned or hereafter acquired, except: (a) Liens securing payment of the Obligations, granted pursuant to any Loan Document; (b) Liens securing payment of Indebtedness of the type permitted and described in clauses (d) and (e) of Section 7.2.2; (c) Liens for taxes, assessments or other governmental charges or levies not at the time delinquent or thereafter payable without penalty or being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books; (d) Liens of carriers, warehousemen, mechanics, materialmen and landlords incurred in the ordinary course of business for sums not overdue or being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books; (e) Liens incurred in the ordinary course of business in connection with workmen's compensation, unemployment insurance or other forms of governmental insurance or benefits, or to secure performance of tenders, statutory obligations, leases and contracts (other than for borrowed -48- money) entered into in the ordinary course of business or to secure obligations on surety or appeal bonds; (f) judgment Liens in existence less than 15 days after the entry thereof or with respect to which execution has been stayed or the payment of which is covered in full (subject to a customary deductible) by insurance maintained with responsible insurance companies; (g) Zoning restrictions, easements, rights of way, title irregularities and other similar encumbrances which alone or in the aggregate do not materially detract from the value of the property subject thereto; (h) Banker's Liens and similar Liens (including set- off rights) in respect of bank deposits; and (i) Landlord's Liens and similar Liens with respect to rental payments for real property which are not delinquent and with respect to which foreclosure, distraint, sale or other similar proceedings shall not have been commenced. SECTION 7.2.4. Financial Condition. The Borrower will not permit: (a) Its Tangible Net Worth to be less than (i) $65,000,000 plus (ii) 50% of the consolidated net income of the Borrower and its Subsidiaries (without giving effect to any losses) for each Fiscal Quarter ending after March 31, 1997 plus (iii) 100% of the Net Available Proceeds from any Equity Issuance by the Borrower after March 31, 1997. (b) Its Senior Debt to Cash Flow Ratio to be greater than 4.5 to 1.00 as of the end of any Fiscal Quarter beginning with the Fiscal Quarter ending on September 30, 1996. (c) Its Interest Coverage Ratio as of the end of any Fiscal Quarter beginning with the Fiscal Quarter ending on September 30, 1996 to be less than 2.00 to 1.00. SECTION 7.2.5. Investments. The Borrower will not, and will not permit any of its Subsidiaries to, make, incur, assume or suffer to exist any Investment in any other Person, except: (a) Investments existing on the Effective Date and identified in Item 7.2.5(a) ("Ongoing Investments") of the Disclosure Schedule; -49- (b) Cash Equivalent Investments; (c) without duplication, Investments permitted as Indebtedness pursuant to Section 7.2.2; (d) Investments by the Borrower or any of its Subsidiaries (other than EC5) in any of the Borrower's Subsidiaries (other than EC5). SECTION 7.2.6. Restricted Payments, etc. On and at all times after the Effective Date: (a) except as provided in Section 3.1(b), the Borrower will not declare, pay or make any dividend or distribution (in cash, property or obligations) on any shares of any class of capital stock (now or hereafter outstanding) of the Borrower or on any warrants, options or other rights with respect to any shares of any class of capital stock (now or hereafter outstanding) of the Borrower (other than dividends or distributions payable in its common stock or warrants to purchase its common stock or splitups or reclassifications of its stock into additional or other shares of its common stock) or apply, or permit any of its Subsidiaries to apply, any of its funds, property or assets to the purchase, redemption, sinking fund or other retirement of, or agree or permit any of its Subsidiaries to purchase or redeem, any shares of any class of capital stock (now or hereafter outstanding) of the Borrower, or warrants, options or other rights with respect to any shares of any class of capital stock (now or hereafter outstanding) of the Borrower; (b) the Borrower will not, and will not permit any of its Subsidiaries to (i) make any payment or prepayment of principal of the Calpine Subordinated Indebtedness (except as provided in Section 3.1(b)) or the Clear Lake Subordinated Indebtedness, or which would violate the subordination provisions of the Calpine Subordinated Indebtedness or the Clear Lake Subordinated Indebtedness; or (ii) make any payment of interest on the Calpine Subordinated Indebtedness (except as provided in Section 3.1(b)) or the Clear Lake Subordinated Indebtedness; provided, however, that the Borrower may, so long as no Default or Event of Default exists, make such payments on the stated, scheduled date for such payment set forth in the Subordination Agreement by depositing an amount equal to the amount of such -50- interest into an account pledged to the Agent pursuant to the Deposit and Disbursement Agreement (it being understood that no such funds shall be released to Calpine until all Obligations have been fully and finally discharged); or (iii) redeem, purchase or defease, any Calpine Subordinated Indebtedness or Clear Lake Subordinated Indebtedness; and (c) the Borrower will not, and will not permit any Subsidiary to, make any deposit for any of the foregoing purposes. SECTION 7.2.7. Rental Obligations. Except for the leases described in Item 7.2.7 of the Disclosure Schedule, the Borrower will not, and will not permit any of its Subsidiaries to, enter into at any time any arrangement which does not create a Capitalized Lease Liability and which involves the leasing by the Borrower or any of its Subsidiaries from any lessor of any real or personal property (or any interest therein), except arrangements which, together with all other such arrangements which shall then be in effect, will not require the payment of an aggregate amount of rentals by the Borrower and its Subsidiaries in excess of (excluding escalations resulting from a rise in the consumer price or similar index) $500,000 for any Fiscal Year. SECTION 7.2.8. Take or Pay Contracts. Except for any existing arrangements under the Project Documents, the Borrower will not, and will not permit any of its Subsidiaries to, enter into or be a party to any arrangement for the purchase of materials, supplies, other property or services if such arrangement by its express terms requires that payment be made by the Borrower or such Subsidiary regardless of whether such materials, supplies, other property or services are delivered or furnished to it. SECTION 7.2.9. Consolidation, Merger, etc. The Borrower will not, and will not permit any of its Subsidiaries to, liquidate or dissolve, consolidate with, or merge into or with, any other corporation, or purchase or otherwise acquire all or substantially all of the assets of any Person (or of any division thereof). The Borrower will not, and will not permit any of its Subsidiaries to, create any Subsidiary, except with the prior written consent of the Agent. SECTION 7.2.10. Asset Dispositions, etc. The Borrower will not, and will not permit any of its Subsidiaries to, sell, transfer, lease, contribute or otherwise convey, or grant options, warrants or other rights with respect to, all or any substantial part of its assets (including accounts receivable and -51- capital stock of Subsidiaries) to any Person, except for (i) those matters described in Item 7.2.10 of the Disclosure Schedule and (ii) sales in the ordinary course of business and sales of assets or equipment which is obsolete, worn out or no longer useful in the operation of the Projects, unless the net book value of such assets, together with the net book value of all other assets sold, transferred, leased, contributed or conveyed otherwise than in the ordinary course of business by the Borrower or any of its Subsidiaries pursuant to this clause since the Effective Date, does not exceed $100,000. SECTION 7.2.11. Modification of Certain Agreements. Except as set forth in Item 7.2.11 to the Disclosure Schedule, the Borrower will not, and will not permit any of its Subsidiaries to, consent (to the extent it has any right to give or withhold consent) to any release of collateral (including any reserve accounts) securing indebtedness under the Project Loan Documents, consent to any amendment, supplement, replacement, waiver or other modification, or any cancellation or termination (other than upon full performance of the obligations of the parties thereto), of any of the terms or provisions contained in, or applicable to, (i) the Purchase Documents; (ii) the Debt Assignment Documents; (iii) the Project Loan Documents; (iv) the Project Swap Agreements; (v) the Project Documents; (vi) the Subordination Agreement (Clear Lake); (vii) the Shareholders Agreement; (viii) the Equity Support Agreements; or (ix) the Standstill Agreements, without the prior written consent of the Agent. Notwithstanding the foregoing, (w) the Borrower and its Subsidiaries may release Seller and its Affiliates from their obligations under the Project Documents and the Project Loan Documents provided that Calpine (with respect to obligations of Enron Corp.) and the Borrower (with respect to obligations of the Seller) are substituted therefor, (x) the Borrower may waive immaterial defaults under the Project Documents and the Project Loan Documents, (y) Clear Lake and Cogenron may amend (or terminate and replace) the Project Documents so long as such amended (or replacement) Project Documents (I) during the presently existing term of such Project Documents have terms and conditions no less favorable to Clear Lake, Cogenron, the Borrower, the Agent and the Lenders than those in effect on the Effective Date (after giving effect to any amendments or terminations to be effective as of such date as described in Item 7.2.11 of the Disclosure Schedule) and (II) thereafter have terms and conditions which are reasonably likely to produce net cash flow of Cogenron or Clear Lake, as applicable, which is at least equal to ninety percent (90%) of that shown in the Financial Projections, and (z) the Borrower, Clear Lake, Cogenron and the other parties to the Project Loan Documents may amend (or terminate and replace) the Project Loan Documents so long as such amended (or replacement) documents do not (I) extend the date fixed for the payment of principal of or interest on any loan or -52- fee thereunder, (II) reduce the amount of any such payment of principal, (III) reduce the rate at which interest is payable thereon or any fee is payable thereunder, (IV) alter the obligations to prepay loans thereunder, (V) release any collateral, guarantees or support agreements or (VI) adversely affect the perfection or priority of any security interest in any collateral or the rights of the Borrower as "Lender" or "Agent" under the Clear Lake Credit Agreement or as "Bank" or "Agent" under the Cogenron Credit Agreement to foreclose on any collateral. Except as provided in Section 7.1.8, the Borrower and its Subsidiaries will not enter into any additional material Project Loan Document or (except as described above)Project Document without the prior written consent of the Agent and the Lenders. To measure the effect of any amended or replacement Project Documents, the Borrower shall, within a reasonable time prior to entering into any such amended or replacement Project Document, prepare and deliver to the Agent pro forma financial projections showing the effect on an aggregate basis of such amended or replacement Project Document, together with the then existing Project Documents and any amended or replacement Project Documents which have been entered into or are to be entered into prior to the amendment or replacement then under consideration. The Borrower will not, and will not permit any of its Subsidiaries to, take any action in violation of this Section 7.2.11 notwithstanding its ability to otherwise do so under the Standstill Agreements. SECTION 7.2.12. Transactions with Affiliates. The Borrower will not, and will not permit any of its Subsidiaries to, enter into, or cause, suffer or permit to exist any arrangement or contract with any of its other Affiliates unless such arrangement or contract is fair and equitable to the Borrower or such Subsidiary and is an arrangement or contract of the kind which would be entered into by a prudent Person in the position of the Borrower or such Subsidiary with a Person which is not one of its Affiliates. Without limiting the generality of the foregoing or of Section 7.2.11, the Agent and the Lenders hereby consent to (i) the performance of operation and maintenance activities by Affiliates of the Borrower on substantially the same terms and conditions as contained in the Operations and Maintenance Agreements, each dated as of August 1, 1995, for the Projects, including any modifications thereto or replacement agreements described in Item 7.2.11 of the Disclosure Schedule, (ii) to the performance of administrative services by Dominion or its Affiliates for EDCC, Clear Lake, Cogenron and EC5 on substantially the same terms and conditions as contained in the Administrative Services Agreement dated as of August 1, 1995 by and among Enron Capital & Trade Resources Corp., EDCC, Clear -53- Lake, Cogenron and EC5, including any modifications or replacement agreements thereto described in Item 7.2.11 of the Disclosure Schedule and (iii) to the purchase and sale of gas by EDCC, Cogenron and Clear Lake under gas sales agreements between EDCC and DEI Texas, Inc., between Clear Lake and EDCC, and between Cogenron and DEI Texas. SECTION 7.2.13. Negative Pledges, Restrictive Agreements, etc. The Borrower will not, and will not permit any of its Subsidiaries to, enter into any agreement (excluding this Agreement, any other Loan Document and, with respect to subparagraphs (a) and (b) below, any agreement governing any Indebtedness permitted either by clause (d) and (e) of Section 7.2.2 as in effect on the Effective Date), prohibiting (a) the creation or assumption of any Lien upon its properties, revenues or assets, whether now owned or hereafter acquired; (b) the ability of any Subsidiary 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 any other agreement or arrangement which restricts the ability of any such Subsidiary to make any payment, directly or indirectly, to the Borrower; or (c) the ability of the Borrower or any other Obligor to amend or otherwise modify this Agreement or any other Loan Document. SECTION 7.2.14. Change of Name or Office or Fiscal Year. The Borrower shall not change its name, or the location of its chief executive office or principal place of business or the office where it keeps its records concerning the Projects and all Basic Documents from that existing on the date of this Agreement and specified in Section 6.19, unless (a) such Borrower shall have given the Agent at least thirty (30) days' prior written notice, and (b) all action necessary or advisable in the Agent's opinion to protect and perfect the Liens and security interests with respect to the Collateral created by the Collateral Security Documents shall have been taken. The Borrower shall not change its Fiscal Year from the calendar year. SECTION 7.2.15. Pension and Welfare Plans. Neither Borrower nor any Subsidiary shall create any Pension Plan or Welfare Plan or become liable for any obligations of any Pension Plan or Welfare Plan. -54- ARTICLE VIII EVENTS OF DEFAULT SECTION 8.1. Listing of Events of Default. Each of the following events or occurrences described in this Section 8.1 shall constitute an "Event of Default". SECTION 8.1.1. Non-Payment of Obligations. The Borrower shall default in the payment or prepayment when due of any principal of or interest on any Loan, or the Borrower shall default (and such default shall continue unremedied for a period of five days) in the payment when due of any other Obligation. SECTION 8.1.2. Breach of Warranty. Any representation or warranty of the Borrower or any other Obligor made or deemed to be made hereunder or in any other Loan Document executed by it or any other writing or certificate furnished by or on behalf of the Borrower or any other Obligor to the Agent or any Lender for the purposes of or in connection with this Agreement or any such other Loan Document (including any certificates delivered pursuant to Article V) is or shall be incorrect when made in any material respect. SECTION 8.1.3. Non-Performance of Certain Covenants and Obligations. The Borrower shall default in the due performance and observance of any of its obligations under Section 7.2 (except for Section 7.2.4(a)) and such default shall continue unremedied for a period of 10 days after the earlier of (i) knowledge thereof by the Borrower and (ii) notice thereof has been given to the Borrowers by the Agent or any Lender. SECTION 8.1.4. Non-Performance of Other Covenants and Obligations. Any Obligor shall default in the due performance and observance of any other agreement contained herein or in any other Loan Document executed by it, and such default shall continue unremedied for a period of 30 days after notice thereof shall have been given to the Borrower by the Agent or any Lender (or such longer period as the Required Lenders in their reasonable discretion, may agree, provided that such Obligor has commenced such cure within such 30 day period and thereafter diligently pursues such cure to completion). SECTION 8.1.5. Default on Other Indebtedness. A default shall occur in the payment when due (subject to any applicable grace period), whether by acceleration or otherwise, of any Indebtedness (other than Indebtedness described in Section 8.1.1) of the Borrower or any of its Subsidiaries having a principal amount, individually or in the aggregate, in excess of $200,000, or a default shall occur in the performance or observance of any obligation or condition with respect to such Indebtedness if the -55- effect of such default is to accelerate the maturity of any such Indebtedness or such default shall continue unremedied for any applicable period of time sufficient to permit the holder or holders of such Indebtedness, or any trustee or agent for such holders, to cause such Indebtedness to become due and payable prior to its expressed maturity. SECTION 8.1.6. Judgments. Any judgment or order for the payment of money in excess of $500,000 which is not subject to indemnification from Seller, Dominion or their respective Affiliates (provided that any such Person has acknowledged its indemnification liability and has the financial capability to pay its indemnification liability) or which is not fully covered by insurance (subject to customary deductible amounts) shall be rendered against the Borrower or any of its Subsidiaries and either (a) enforcement proceedings shall have been commenced by any creditor upon such judgment or order; or (b) there shall be any period of 20 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect. SECTION 8.1.7. Control of the Borrower. Any Change in Control shall occur. SECTION 8.1.8. Bankruptcy, Insolvency, etc. The Borrower or any of its Subsidiaries (other than EC5) or any other Obligor shall (a) become insolvent or generally fail to pay, or admit in writing its inability or unwillingness to pay, debts as they become due; (b) apply for, consent to, or acquiesce in, the appointment of a trustee, receiver, sequestrator or other custodian for the Borrower or any of its Subsidiaries or any other Obligor or any property of any thereof, or make a general assignment for the benefit of creditors; (c) in the absence of such application, consent or acquiescence, permit or suffer to exist the appointment of a trustee, receiver, sequestrator or other custodian for the Borrower or any of its Subsidiaries or any other Obligor or for a substantial part of the property of any thereof, and such trustee, receiver, sequestrator or other custodian shall not be discharged within 60 days, provided that the Borrower, each Subsidiary and each other Obligor hereby expressly authorizes the Agent and each Lender to -56- appear in any court conducting any relevant proceeding during such 60-day period to preserve, protect and defend their rights under the Loan Documents; (d) permit or suffer to exist the commencement of any bankruptcy, reorganization, debt arrangement or other case or proceeding under any bankruptcy or insolvency law, or any dissolution, winding up or liquidation proceeding, in respect of the Borrower or any of its Subsidiaries or any other Obligor, and, if any such case or proceeding is not commenced by the Borrower or such Subsidiary or such other Obligor, such case or proceeding shall be consented to or acquiesced in by the Borrower or such Subsidiary or such other Obligor or shall result in the entry of an order for relief or shall remain for 60 days undismissed, provided that the Borrower, each Subsidiary and each other Obligor hereby expressly authorizes the Agent and each Lender to appear in any court conducting any such case or proceeding during such 60-day period to preserve, protect and defend their rights under the Loan Documents; or (e) take any action authorizing, or in furtherance of, any of the foregoing. SECTION 8.1.9. Impairment of Security, etc. Any Loan Document, or any Lien granted thereunder, shall (except in accordance with its terms), in whole or in part, terminate, cease to be effective or cease to be the legally valid, binding and enforceable obligation of any Obligor party thereto; the Borrower, any other Obligor or any other party shall, directly or indirectly, contest in any manner such effectiveness, validity, binding nature or enforceability; or any Lien securing any Obligation shall, in whole or in part, cease to be a perfected first priority Lien without the fault or omission of the Agent or any Lender, subject only to those exceptions expressly permitted by such Loan Document. SECTION 8.1.10. Public Utility Regulation. The Borrower or any of its Subsidiaries or the Agent or any Lender shall, as a result of any transaction contemplated hereby, become subject to: regulation as a public utility, electric utility company or holding company under the Public Utility Holding Company Act of 1935, as amended; regulation as a public utility under the Federal Power Act, as amended, except for such regulation by the Federal Energy Regulatory commission as may occur under sections of such Act specified in 18 C.F.R. Sec. 292.601(c); or financial, organizational or rate regulation as an electric utility, electric company, public service company, public utility, or any other similar entity under any state law or regulation. -57- SECTION 8.2. Action if Bankruptcy. If any Event of Default described in clauses (a) through (d) of Section 8.1.8 shall occur with respect to the Borrower or any Subsidiary (other than EC5) or any other Obligor, the Commitments (if not theretofore terminated) shall automatically terminate and the outstanding principal amount of all outstanding Loans and all other Obligations shall automatically be and become immediately due and payable, without notice or demand. SECTION 8.3. Action if Other Event of Default. If any Event of Default (other than any Event of Default described in clauses (a) through (d) of Section 8.1.8 with respect to the Borrower or any Subsidiary or any other Obligor) shall occur for any reason, whether voluntary or involuntary, and be continuing, the Agent, upon the direction of the Required Lenders, shall by notice to the Borrower declare all or any portion of the outstanding principal amount of the Loans and other Obligations to be due and payable and/or the Commitments (if not theretofore terminated) to be terminated, whereupon the full unpaid amount of such Loans and other Obligations which shall be so declared due and payable shall be and become immediately due and payable, without further notice, demand or presentment, and/or, as the case may be, the Commitments shall terminate. SECTION 8.4. Restrictions on Off-Sets. The Borrower will not, and will not permit any of its Subsidiaries to, take any action or fail to take any action or allow to occur any reduction in the amounts owing under the Clear Lake Credit Agreement or the Cogenron Credit Agreement pursuant to the off-set provisions under the Standstill Agreements at any time after the occurrence of an Event of Default. ARTICLE IX THE AGENT SECTION 9.1. Actions. Each Lender hereby appoints Scotiabank as its Agent under and for purposes of this Agreement, the Notes and each other Loan Document. Each Lender authorizes the Agent to act on behalf of such Lender under this Agreement, the Notes and each other Loan Document and, in the absence of other written instructions from the Required Lenders received from time to time by the Agent (with respect to which the Agent agrees that it will comply, except as otherwise provided in this Section or as otherwise advised by counsel), to exercise such powers hereunder and thereunder as are specifically delegated to or required of the Agent by the terms hereof and thereof, together with such powers as may be reasonably incidental thereto. Each Lender hereby indemnifies (which indemnity shall survive any termination of this Agreement) the Agent, pro rata -58- according to such Lender's Percentage, from and against any and all liabilities, obligations, losses, damages, claims, costs or expenses of any kind or nature whatsoever which may at any time be imposed on, incurred by, or asserted against, the Agent in any way relating to or arising out of this Agreement, the Notes and any other Loan Document, including reasonable attorneys' fees, and as to which the Agent is not reimbursed by the Borrower; provided, however, that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, claims, costs or expenses which are determined by a court of competent jurisdiction in a final proceeding to have resulted solely from the Agent's gross negligence or wilful misconduct. The Agent shall not be required to take any action hereunder, under the Notes or under any other Loan Document, or to prosecute or defend any suit in respect of this Agreement, the Notes or any other Loan Document, unless it is indemnified hereunder to its satisfaction. If any indemnity in favor of the Agent shall be or become, in the Agent's determination, inadequate, the Agent may call for additional indemnification from the Lenders and cease to do the acts indemnified against hereunder until such additional indemnity is given. SECTION 9.2. Funding Reliance, etc. Unless the Agent shall have been notified by telephone, confirmed in writing, by any Lender by 5:00 p.m., San Francisco time, on the day prior to a Borrowing that such Lender will not make available the amount which would constitute its Percentage of such Borrowing on the date specified therefor, the Agent may assume that such Lender has made such amount available to the Agent and, in reliance upon such assumption, make available to the Borrower a corresponding amount. If and to the extent that such Lender shall not have made such amount available to the Agent, such Lender and the Borrower severally agree to repay the Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date the Agent made such amount available to the Borrower to the date such amount is repaid to the Agent, at the interest rate applicable at the time to Loans comprising such Borrowing. SECTION 9.3. Exculpation. Neither the Agent nor any of its directors, officers, employees or agents shall be liable to any Lender for any action taken or omitted to be taken by it under this Agreement or any other Loan Document, or in connection herewith or therewith, except for its own wilful misconduct or gross negligence, nor responsible for any recitals or warranties herein or therein, nor for the effectiveness, enforceability, validity or due execution of this Agreement or any other Loan Document, nor for the creation, perfection or priority of any Liens purported to be created by any of the Loan Documents, or the validity, genuineness, enforceability, existence, value or sufficiency of any collateral security, nor to make any inquiry -59- respecting the performance by the Borrower of its obligations hereunder or under any other Loan Document. Any such inquiry which may be made by the Agent shall not obligate it to make any further inquiry or to take any action. The Agent shall be entitled to rely upon advice of counsel concerning legal matters and upon any notice, consent, certificate, statement or writing which the Agent believes to be genuine and to have been presented by a proper Person. SECTION 9.4. Successor. The Agent may resign as such at any time upon at least 30 days' prior notice to the Borrower and all Lenders. If the Agent at any time shall resign, the Required Lenders may appoint another Lender as a successor Agent which shall thereupon become the Agent hereunder. If no successor Agent shall have been so appointed by the Required Lenders, and shall have accepted such appointment, within 30 days after the retiring Agent's giving notice of resignation, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent, which shall be one of the Lenders or a commercial banking institution organized under the laws of the U.S. (or any State thereof) or a U.S. branch or agency of a commercial banking institution, and having a combined capital and surplus of at least $500,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall be entitled to receive from the retiring Agent such documents of transfer and assignment as such successor Agent may reasonably request, and shall thereupon succeed to and become vested with all rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under this Agreement. After any retiring Agent's resignation hereunder as the Agent, the provisions of (a) this Article IX shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Agent under this Agreement; and (b) Section 10.3 (with respect to expenses incurred prior to resignation) and Section 10.4 shall continue to inure to its benefit. SECTION 9.5. Loans by Scotiabank. Scotiabank shall have the same rights and powers with respect to (x) the Loans made by it or any of its Affiliates, and (y) the Notes held by it or any of its Affiliates as any other Lender and may exercise the same as if it were not the Agent. Scotiabank and its Affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Borrower or any Subsidiary or Affiliate of the Borrower as if Scotiabank were not the Agent hereunder. SECTION 9.6. Credit Decisions. Each Lender acknowledges that it has, independently of the Agent and each other Lender, -60- and based on such Lender's review of the financial information of the Borrower, this Agreement, the other Loan Documents (the terms and provisions of which being satisfactory to such Lender) and such other documents, information and investigations as such Lender has deemed appropriate, made its own credit decision to extend its Commitment. Each Lender also acknowledges that it will, independently of the Agent and each other Lender, and based on such other documents, information and investigations as it shall deem appropriate at any time, continue to make its own credit decisions as to exercising or not exercising from time to time any rights and privileges available to it under this Agreement or any other Loan Document. SECTION 9.7. Copies, etc. The Agent shall give prompt notice to each Lender of each notice or request required or permitted to be given to the Agent by the Borrower pursuant to the terms of this Agreement (unless concurrently delivered to the Lenders by the Borrower). The Agent will distribute to each Lender each document or instrument received for its account and copies of all other communications received by the Agent from the Borrower for distribution to the Lenders by the Agent in accordance with the terms of this Agreement. ARTICLE X MISCELLANEOUS PROVISIONS SECTION 10.1. Waivers, Amendments, etc. The provisions of this Agreement and of each other Loan Document may from time to time be amended, modified or waived, if such amendment, modification or waiver is in writing and consented to by the Borrower and the Required Lenders; provided, however, that no such amendment, modification or waiver which would: (a) modify any requirement hereunder that any particular action be taken by all the Lenders or by the Required Lenders shall be effective unless consented to by each Lender; (b) modify this Section 10.1, change the definition of "Required Lenders", increase the Commitment Amount or the Percentage of any Lender, reduce any fees described in Article III, release any Collateral, except as otherwise specifically provided in Section 7.2.10, shall be made without the consent of each Lender and each holder of a Note; (c) extend the due date for, or reduce the amount of, any scheduled repayment or prepayment of principal of or interest on any Loan (or reduce the principal amount of or -61- rate of interest on any Loan) shall be made without the consent of each Lender; or (d) affect adversely the interests, rights or obligations of the Agent qua the Agent shall be made without consent of the Agent. No failure or delay on the part of the Agent, any Lender or the holder of any Note in exercising any power or right under this Agreement or any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such power or right preclude any other or further exercise thereof or the exercise of any other power or right. No notice to or demand on the Borrower in any case shall entitle it to any notice or demand in similar or other circumstances. No waiver or approval by the Agent, any Lender or the holder of any Note under this Agreement or any other Loan Document shall, except as may be otherwise stated in such waiver or approval, be applicable to subsequent transactions. No waiver or approval hereunder shall require any similar or dissimilar waiver or approval thereafter to be granted hereunder. SECTION 10.2. Notices. All notices and other communications provided to any party hereto under this Agreement or any other Loan Document shall be in writing or by facsimile and addressed, delivered or transmitted to such party at its address or facsimile number set forth below its signature hereto or set forth in the Lender Assignment Agreement or at such other address or facsimile number as may be designated by such party in a notice to the other parties. Any notice, if mailed and properly addressed with postage prepaid or if properly addressed and sent by pre-paid courier service, shall be deemed given when received; any notice, if transmitted by facsimile, shall be deemed given when transmitted. SECTION 10.3. Payment of Costs and Expenses. The Borrower agrees to pay on demand all reasonable expenses of the Agent (including the fees and out-of-pocket expenses of counsel to the Agent and of local counsel, if any, who may be retained by counsel to the Agent) in connection with (a) the negotiation, preparation, execution and delivery of this Agreement and of each other Loan Document, including schedules and exhibits, and any amendments, waivers, consents, supplements or other modifications to this Agreement or any other Loan Document as may from time to time hereafter be required, whether or not the transactions contemplated hereby are consummated; and (b) the filing, recording, refiling or rerecording of the Pledge Agreement and the Security Agreements and/or any -62- Uniform Commercial Code financing statements relating thereto and all amendments, supplements and modifications to any thereof and any and all other documents or instruments of further assurance required to be filed or recorded or refiled or rerecorded by the terms hereof or of the Pledge Agreement or the Security Agreements; and (c) the preparation and review of the form of any document or instrument relevant to this Agreement or any other Loan Document. The Borrower further agrees to pay, and to save the Agent and the Lenders harmless from all liability for, any stamp or other taxes (other than income taxes) which may be payable in connection with the execution or delivery of this Agreement, the borrowings hereunder, or the issuance of the Notes or any other Loan Documents. The Borrower also agrees to reimburse the Agent and each Lender upon demand for all reasonable out-of-pocket expenses (including attorneys' fees and legal expenses) incurred by the Agent or such Lender in connection with (x) the negotiation of any restructuring or "work-out", whether or not consummated, of any Obligations and (y) the enforcement of any Obligations. SECTION 10.4. Indemnification. In consideration of the execution and delivery of this Agreement by each Lender and the extension of the Commitments, the Borrower hereby indemnifies, exonerates and holds the Agent and each Lender and each of their respective officers, directors, employees and agents (collectively, the "Indemnified Parties") free and harmless from and against any and all actions, causes of action, suits, losses, costs, liabilities and damages, and expenses incurred in connection therewith (irrespective of whether any such Indemnified Party is a party to the action for which indemnification hereunder is sought), including reasonable attorneys' fees and disbursements (collectively, the "Indemnified Liabilities"), incurred by the Indemnified Parties or any of them as a result of, or arising out of, or relating to (a) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of any Loan; (b) the entering into and performance of this Agreement and any other Loan Document by any of the Indemnified Parties (including any action brought by or on behalf of the Borrower as the result of any determination by the Required Lenders pursuant to Article V not to fund any Borrowing but not including any breach of this Agreement or any other Loan Documents by Agent or any of the Lenders); -63- (c) any investigation, litigation or proceeding related to any acquisition or proposed acquisition by the Borrower or any of its Subsidiaries of all or any portion of the stock or assets of any Person, whether or not the Agent or such Lender is party thereto; (d) any investigation, litigation or proceeding related to any environmental cleanup, audit, compliance or other matter relating to the protection of the environment or the Release by the Borrower or any of its Subsidiaries of any Hazardous Material; or (e) the presence on or under, or the escape, seepage, leakage, spillage, discharge, emission, discharging or releases from, any real property owned or operated by the Borrower or any Subsidiary thereof of any Hazardous Material (including any losses, liabilities, damages, injuries, costs, expenses or claims asserted or arising under any Environmental Law), regardless of whether caused by, or within the control of, the Borrower or such Subsidiary, except for any such Indemnified Liabilities arising for the account of a particular Indemnified Party by reason of the relevant Indemnified Party's gross negligence or wilful misconduct. If and to the extent that the foregoing undertaking may be unenforceable for any reason, the Borrower hereby agrees to make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. SECTION 10.5. Survival. The obligations of the Borrower under Sections 4.3, 4.4, 4.5, 4.6, 10.3 and 10.4, and the obligations of the Lenders under Section 9.1, shall in each case survive any termination of this Agreement, the payment in full of all Obligations and the termination of all Commitments. The representations and warranties made by each Obligor in this Agreement and in each other Loan Document shall survive the execution and delivery of this Agreement and each such other Loan Document. SECTION 10.6. Severability. Any provision of this Agreement or any other Loan Document which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement or such Loan Document or affecting the validity or enforceability of such provision in any other jurisdiction. -64- SECTION 10.7. Headings. The various headings of this Agreement and of each other Loan Document are inserted for convenience only and shall not affect the meaning or interpretation of this Agreement or such other Loan Document or any provisions hereof or thereof. SECTION 10.8. Execution in Counterparts, Effectiveness, etc. This Agreement may be executed by the parties hereto in several counterparts, each of which shall be executed by the Borrower and the Agent and be deemed to be an original and all of which shall constitute together but one and the same agreement. This Agreement shall become effective when counterparts hereof executed on behalf of the Borrower and each Lender (or notice thereof satisfactory to the Agent) shall have been received by the Agent and notice thereof shall have been given by the Agent to the Borrower and each Lender. SECTION 10.9. Governing Law; Entire Agreement. THIS AGREEMENT, THE NOTES AND EACH OTHER LOAN DOCUMENT SHALL EACH BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK. This Agreement, the Notes and the other Loan Documents constitute the entire understanding among the parties hereto with respect to the subject matter hereof and supersede any prior agreements, written or oral, with respect thereto. SECTION 10.10. Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that: (a) the Borrower may not assign or transfer its rights or obligations hereunder without the prior written consent of the Agent and all Lenders; and (b) the rights of sale, assignment and transfer of the Lenders are subject to Section 10.11. SECTION 10.11. Sale and Transfer of Loans and Note; Participations in Loans and Note. Each Lender may assign, or sell participations in, its Loans and Commitment to one or more other Persons in accordance with this Section 10.11. SECTION 10.11.1. Assignments. Any Lender, (a) with the written consents of the Borrower and the Agent (which consents shall not be unreasonably delayed or withheld and which consent, in the case of the Borrower, shall be deemed to have been given in the absence of a written notice delivered by the Borrower to the Agent, on or before the tenth Business Day after receipt by the -65- Borrower of such Lender's request for consent, stating, in reasonable detail, the reasons why the Borrower proposes to withhold such consent) may at any time assign and delegate to one or more commercial banks or other financial institutions; and (b) with notice to the Borrower and the Agent, but without the consent of the Borrower or the Agent, may assign and delegate to any of its Affiliates or to any other Lender (each Person described in either of the foregoing clauses as being the Person to whom such assignment and delegation is to be made, being hereinafter referred to as an "Assignee Lender"), all or any fraction of such Lender's total Loans and Commitment (which assignment and delegation shall be of a constant, and not a varying, percentage of all the assigning Lender's Loans and Commitment) in a minimum aggregate amount of $10,000,000; provided, however, that any such Assignee Lender will comply, if applicable, with the provisions contained in the last sentence of Section 4.6 and further, provided, however, that, the Borrower, each other Obligor and the Agent shall be entitled to continue to deal solely and directly with such Lender in connection with the interests so assigned and delegated to an Assignee Lender until (c) written notice of such assignment and delegation, together with payment instructions, addresses and related information with respect to such Assignee Lender, shall have been given to the Borrower and the Agent by such Lender and such Assignee Lender; (d) such Assignee Lender shall have executed and delivered to the Borrower and the Agent a Lender Assignment Agreement, accepted by the Agent; and (e) the processing fees described below shall have been paid. From and after the date that the Agent accepts such Lender Assignment Agreement, (x) the Assignee Lender thereunder shall be deemed automatically to have become a party hereto and to the extent that rights and obligations hereunder have been assigned and delegated to such Assignee Lender in connection with such Lender Assignment Agreement, shall have the rights and obligations of a Lender hereunder and under the other Loan Documents, and (y) the assignor Lender, to the extent that rights and obligations hereunder have been assigned and delegated by it in connection with such Lender Assignment Agreement, shall be released from its obligations hereunder and under the other Loan Documents with respect to obligations arising after the date of assignment. Within five Business Days after its receipt of -66- notice that the Agent has received an executed Lender Assignment Agreement, the Borrower shall execute and deliver to the Agent (for delivery to the relevant Assignee Lender) a new Note evidencing such Assignee Lender's assigned Loans and Commitment and, if the assignor Lender has retained Loans and its Commitment hereunder, a replacement Note in the principal amount of the Loans and Commitment retained by the assignor Lender hereunder (such Note to be in exchange for, but not in payment of, that Note then held by such assignor Lender). Each such Note shall be dated the date of the predecessor Note. The assignor Lender shall mark the predecessor Note "exchanged" and deliver it to the Borrower. Accrued interest on that part of the predecessor Note evidenced by the new Note, and accrued fees, shall be paid as provided in the Lender Assignment Agreement. Accrued interest on that part of the predecessor Note evidenced by the replacement Note shall be paid to the assignor Lender. Accrued interest and accrued fees shall be paid at the same time or times provided in the predecessor Note and in this Agreement. Such assignor Lender or such Assignee Lender must also pay a processing fee to the Agent upon delivery of any Lender Assignment Agreement in the amount of $3,000. Any attempted assignment and delegation not made in accordance with this Section 10.11.1 shall be null and void. SECTION 10.11.2. Participations. Any Lender may at any time sell to one or more commercial banks or other Persons (each of such commercial banks and other Persons being herein called a "Participant") participating interests in any of the Loans, Commitment, or other interests of such Lender hereunder; provided, however, that (a) no participation contemplated in this Section 10.11 shall relieve such Lender from its Commitment or its other obligations hereunder or under any other Loan Document; (b) such Lender shall remain solely responsible for the performance of its Commitment and such other obligations; (c) the Borrower and each other Obligor and the Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and each of the other Loan Documents; (d) no Participant, unless such Participant is an Affiliate of such Lender, or is itself a Lender, shall be entitled to require such Lender to take or refrain from taking any action hereunder or under any other Loan Document, except that such Lender may agree with any Participant that such Lender will not, without such -67- Participant's consent, take any actions of the type described in clause (b) or (c) of Section 10.1; and (e) the Borrower shall not be required to pay any amount under Section 4.6 that is greater than the amount which it would have been required to pay had no participating interest been sold. The Borrower acknowledges and agrees that each Participant, for purposes of Sections 4.3, 4.4, 4.5, 4.6, 4.8, 4.9, 10.3 and 10.4, shall be considered a Lender. SECTION 10.12. Other Transactions. Nothing contained herein shall preclude the Agent or any other Lender from engaging in any transaction, in addition to those contemplated by this Agreement or any other Loan Document, with the Borrower or any of its Affiliates in which the Borrower or such Affiliate is not restricted hereby from engaging with any other Person. SECTION 10.13. Forum Selection and Consent to Jurisdiction and Agent for Service of Process. (a) ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE AGENT, THE LENDERS OR THE BORROWER SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY may BE BROUGHT, AT THE AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY may BE FOUND. THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. THE BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK OR IN ANY MANNER PROVIDED BY LAW. THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT may HAVE OR HEREAFTER may HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT THE BORROWER HAS OR HEREAFTER may ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OF FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE BORROWER -68- HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. (b) Nothing contained in this section shall preclude the Agent or the Lenders from bringing any legal suit, action or proceeding against the Borrower in the courts of any jurisdiction where the Borrower may be found or located. To the extent permitted by the applicable laws of any such jurisdiction, the Borrower hereby irrevocably submits to the jurisdiction of any such court and expressly waives, in respect of any such suit, action or proceeding, the jurisdiction of any courts which now or hereafter, by reason of its present or future domiciles, or otherwise, may be available to it. SECTION 10.14. Waiver of Jury Trial. THE AGENT, THE LENDERS AND THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY may HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE AGENT, THE LENDERS OR THE BORROWER. THE BORROWER ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE AGENT AND THE LENDERS ENTERING INTO THIS AGREEMENT AND EACH SUCH OTHER LOAN DOCUMENT. SECTION 10.15. Confidentiality. The Lenders shall hold all non-public information (which has been identified as such by the Borrower) obtained pursuant to the requirements of this Agreement in accordance with their customary procedures for handling confidential information of this nature and in accordance with safe and sound banking practices and in any event may make disclosure to any of their examiners, their Affiliates, outside auditors, counsel and other professional advisors in connection with this Agreement or as reasonably required by any bona fide transferee, participant or assignee or as required or requested by any governmental agency or representative thereof or pursuant to legal process; provided, however, that (a) unless specifically prohibited by applicable law or court order, each Lender shall notify the Borrower of any request by any governmental agency or representative thereof (other than any such request in connection with an examination of the financial condition of such Lender by such governmental agency) for disclosure of any such non- public information prior to disclosure of such information; (b) prior to any such disclosure pursuant to this Section 10.15, each Lender shall require any such bona fide -69- transferee, participant and assignee receiving a disclosure of non-public information to agree in writing (i) to be bound by this Section 10.15; (ii) to require such Person to require any other Person to whom such Person discloses such non-public information to be similarly bound by this Section 10.15; and (c) except as may be required by an order of a court of competent jurisdiction and to the extent set forth therein, no Lender shall be obligated or required to return any materials furnished by the Borrower or any Subsidiary. SECTION 10.16. Limitations on Recourse. The Agent and the Lenders agree that (except as hereinafter set forth) their rights in respect of the Loans, and any claim or liability under any Loan Document asserted against the Borrower by the Agent or any Lender shall be limited to satisfaction out of, and enforcement against the Collateral, and that after the Agent and the Lenders have exhausted the Collateral, the Borrower shall have no liability to the Agent or any Lender for the payment of any sums now or hereafter owing by the Borrower under any Loan Document. It is expressly understood and agreed that nothing contained in this Section 10.16 shall in any manner or any way constitute (or be deemed to be) a release of any Obligation secured by, or impair the enforceability of, the Liens and security interests and possessory rights created by or arising from this Agreement and the Collateral Security Documents or restrict the remedies available to the Agent and the Lenders to realize upon the Collateral. In addition, this Section 10.16 shall not affect or diminish any legal rights of (i) any Person against any other Person arising from fraud, waste, misappropriation or misapplication of any funds or (ii) of the Agent and the Lenders against any Obligor (other than the Borrower) for breach of any Loan Document. -70- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. CALPINE FINANCE COMPANY By Title: Address: 50 West San Fernando Street San Jose, California 95113 Facsimile No.: 408-995-0505 Attention: Asset Manager THE BANK OF NOVA SCOTIA, as Agent By Title: Address: 580 California Street Suite 2100 San Francisco, California 94104 Attention: Eric Knight with a copy to: The Bank of Nova Scotia 600 Peachtree Street N.E. Suite 2700 Atlanta, GA 30308 Attention: Norman Campbell Administrative Agent - Loan Administration Facsimile No.: (404) 888-8998 -71- PERCENTAGE LENDERS THE BANK OF NOVA SCOTIA ___% By Title: Address: 580 California Street Suite 2100 San Francisco, CA 94104 Facsimile No.: (415) 397-0791 Attention: Eric Knight with a copy to: The Bank of Nova Scotia 600 Peachtree Street N.E. Suite 2700 Atlanta, GA 30308 Attention: Norman Campbell Administrative Agent - Loan Administration Facsimile No.: (404) 888-8998 Domestic Office: 580 California Street Suite 2100 San Francisco, CA 94104 Facsimile No.: (415) 397-0791 Attention: Eric Knight LIBOR Office: 580 California Street Suite 2100 San Francisco, CA 94104 Facsimile No.: (415) 397-0791 Attention: Eric Knight -72- -73- TABLE OF CONTENTS SECTION PAGE || ARTICLE I DEFINITIONS AND ACCOUNTING TERMS......................3 1.1. Defined Terms.........................................3 1.2. Use of Defined Terms.................................20 1.3. Cross-References.....................................21 1.4. Accounting and Financial Determinations..............21 ARTICLE II COMMITMENTS, BORROWING PROCEDURES AND NOTES..........21 2.1. Commitments..........................................21 2.2. Borrowing Procedure..................................21 2.3. Continuation and Conversion Elections................22 2.4. Funding..............................................22 2.5. Notes................................................23 ARTICLE III REPAYMENTS, PREPAYMENTS, INTEREST AND FEES...........23 3.1. Repayments and Prepayments...........................23 3.2. Interest Provisions..................................24 3.2.1. Rates................................................24 3.2.2. Post-Maturity Rates..................................25 3.2.3. Payment Dates........................................26 ARTICLE IV CERTAIN LIBO RATE AND OTHER PROVISIONS...............26 4.1. LIBO Rate Lending Unlawful...........................26 4.2. Deposits Unavailable.................................27 4.3. Increased LIBO Rate Loan Costs, etc..................27 4.4. Funding Losses.......................................27 4.5. Increased Capital Costs..............................28 4.6. Taxes................................................28 4.7. Payments, Computations, etc..........................30 4.8. Sharing of Payments..................................30 4.9. Actions of Affected Lenders..........................31 4.10. Use of Proceeds......................................31 ARTICLE V CONDITIONS TO BORROWING..............................31 5.1. Initial Borrowing....................................32 5.1.1. Stock Purchase Consummated...........................32 5.1.2. Debt Acquisitions Consummated........................32 5.1.3. Consents.............................................32 5.1.4. Government Approvals.................................32 5.1.5. Project Swap Agreements..............................33 5.1.6. Calpine Equity Contribution..........................33 5.1.7. Calpine Subordinated Indebtedness....................33 -i- TABLE OF CONTENTS, continued SECTION PAGE 5.1.8. Resolutions, etc.....................................33 5.1.9. Delivery of Notes....................................33 5.1.10. Pledge Agreement.....................................33 5.1.11. Deposit and Disbursement Agreement...................33 5.1.12. Security Agreements..................................34 5.1.13. Subordination Agreement..............................34 5.1.14. Opinions of Counsel..................................34 5.1.15. Purchase Documents...................................34 5.1.16. Project Documents....................................35 5.1.17. Projections..........................................35 5.1.18. Insurance Certificates...............................35 5.1.19. Independent Engineer's Report........................35 5.1.20. Financial Statements.................................35 5.1.21. Loan Purchase Agreement..............................35 5.1.22. Indemnification Agreement............................35 5.1.23. Due Diligence........................................35 5.1.24. Closing Fees, Expenses, etc..........................35 5.2. All Borrowings.......................................36 5.2.1. Compliance with Warranties, No Default, etc..........36 5.2.2. Borrowing Request....................................37 5.2.3. Satisfactory Legal Form..............................37 ARTICLE VI REPRESENTATIONS AND WARRANTIES.......................37 6.1. Organization, etc....................................37 6.2. Due Authorization, Non-Contravention, etc............37 6.3. Government Approval, Regulation, etc.................38 6.4. Validity, etc........................................38 6.5. Financial Information................................39 6.6. No Material Adverse Change...........................39 6.7. Litigation, Labor Controversies, etc.................39 6.8. Subsidiaries.........................................39 6.9. Ownership of Properties..............................39 6.10. Taxes................................................40 6.11. Pension and Welfare Plans............................40 6.12. Environmental Warranties.............................40 6.13. Regulations G, U and X...............................41 6.14. Accuracy of Information..............................41 6.15. Financial Projections................................42 6.16. Collateral Security Documents........................42 6.17. Principal Place of Business, etc.....................42 6.18. Representations and Warranties Incorporated from Purchase Agreement...................................43 ARTICLE VII COVENANTS............................................................43 -ii- TABLE OF CONTENTS, continued SECTION PAGE 7.1. Affirmative Covenants................................43 7.1.1. Financial Information, Reports, Notices, etc.........43 7.1.2. Compliance with Laws, etc............................45 7.1.3. Maintenance of Properties............................45 7.1.4. Insurance............................................45 7.1.5. Books and Records....................................46 7.1.6. Environmental Covenant...............................46 7.1.7. Resist Regulatory Change.............................46 7.1.8. Take-Out Financing; Assignments......................47 7.2. Negative Covenants...................................47 7.2.1. Business Activities..................................47 7.2.2. Indebtedness.........................................47 7.2.3. Liens................................................48 7.2.4. Financial Condition..................................49 7.2.5. Investments..........................................50 7.2.6. Restricted Payments, etc.............................50 7.2.7. Rental Obligations...................................51 7.2.8. Take or Pay Contracts................................51 7.2.9. Consolidation, Merger, etc...........................51 7.2.10. Asset Dispositions, etc..............................52 7.2.11. Modification of Certain Agreements...................52 7.2.12. Transactions with Affiliates.........................53 7.2.13. Negative Pledges, Restrictive Agreements, etc........54 7.2.14. Change of Name or Office or Fiscal Year..............54 7.2.15. Pension and Welfare..................................55 ARTICLE VIII EVENTS OF DEFAULT....................................55 8.1. Listing of Events of Default.........................55 8.1.1. Non-Payment of Obligations...........................55 8.1.2. Breach of Warranty...................................55 8.1.3. Non-Performance of Certain Covenants and Obligations..........................................55 8.1.4. Non-Performance of Other Covenants and Obligations..........................................55 8.1.5. Default on Other Indebtedness........................56 8.1.6. Judgments............................................56 8.1.7. Control of the Borrower..............................56 8.1.8. Bankruptcy, Insolvency, etc..........................56 8.1.9. Impairment of Security, etc..........................57 8.1.10. Public Utility Regulation............................57 8.2. Action if Bankruptcy.................................58 8.3. Action if Other Event of Default.....................58 Restrictions on Off-Sets.............................58 -iii- TABLE OF CONTENTS, continued SECTION PAGE ARTICLE IX THE AGENT............................................58 9.1. Actions..............................................58 9.2. Funding Reliance, etc................................59 9.3. Exculpation..........................................59 9.4. Successor............................................60 9.5. Loans by Scotiabank..................................61 9.6. Credit Decisions.....................................61 9.7. Copies, etc..........................................61 ARTICLE X MISCELLANEOUS PROVISIONS.............................61 10.1. Waivers, Amendments, etc.............................61 10.2. Notices..............................................62 10.3. Payment of Costs and Expenses........................62 10.4. Indemnification......................................63 10.5. Survival.............................................64 10.6. Severability.........................................65 10.7. Headings.............................................65 10.8. Execution in Counterparts, Effectiveness, etc........65 10.9. Governing Law; Entire Agreement......................65 10.10. Successors and Assigns...............................65 10.11. Sale and Transfer of Loans and Note; Participations in Loans and Note....................................65 10.11.1. Assignments..........................................66 10.11.2. Participations.......................................67 10.12. Other Transactions...................................68 10.13. Forum Selection and Consent to Jurisdiction and Agent for Service of Process.........................68 10.14. Waiver of Jury Trial.................................69 10.15. Confidentiality......................................69 10.16. Limitations on Recourse..............................70 || SCHEDULE 1 - Disclosure Schedule SCHEDULE 2 - Filings for Collateral Documents SCHEDULE 3 - Clear Lake Project Documents SCHEDULE 4 - Cogenron Project Documents SCHEDULE 5 - Clear Lake Project Loan Documents SCHEDULE 6 - Cogenron Project Loan Documents SCHEDULE 7 - Financial Projections SCHEDULE 8 - Equity Support Agreements EXHIBIT A - Form of Note EXHIBIT B - Form of Borrowing Request EXHIBIT C - Form of Continuation/Conversion Notice EXHIBIT D - Form of Deposit and Disbursement Agreement -iv- TABLE OF CONTENTS, continued SECTION PAGE EXHIBIT E - Form of Security Agreement EXHIBIT F - Form of Assignment and Security Agreement EXHIBIT G - Form of Pledge Agreement EXHIBIT H - Form of Subordination Agreement EXHIBIT I - Form of Lender Assignment Agreement EXHIBIT J - Form of Opinion of Counsel to the Borrower EXHIBIT K - Form of Loan Purchase Agreement EXHIBIT L - Form of Indemnity Agreement72 -v- EX-10.1.19 7 PURCHASE AGREEMENT $200,0000,000 OF 8-3/4% SRNOTES $200,000,000 CALPINE CORPORATION 8 3/4% Senior Notes PURCHASE AGREEMENT July 1, 1997 CREDIT SUISSE FIRST BOSTON CORPORATION As Representative of the Several Purchasers, 11 Madison Avenue, New York, N.Y. 10010 Dear Sirs: 1. Introductory. Calpine Corporation, a Delaware corporation (the "Company"), proposes, subject to the terms and conditions stated herein, to issue and sell to the several initial purchasers named in Schedule A hereto (the "Purchasers") U.S.$200,000,000 principal amount of its 8 3/4% Senior Notes Due 2007 (the "Offered Securities") to be issued under an indenture dated as of July 8, 1997 (the "Indenture"), between the Company and The Bank of New York (the "Trustee"), on a private placement basis pursuant to an exemption under Section 4(2) of the United States Securities Act of 1933 (the "Securities Act"). Holders (including subsequent transferees) of the Offered Securities will have the registration rights set forth in the Registration Rights Agreement of even date herewith (the "Registration Rights Agreement"), among the Company and the Purchasers. Pursuant to the Registration Rights Agreement the Company has agreed to file with the Securities and Exchange Commission (the "Commission") (i) a registra tion statement (the "Exchange Offer Registration Statement") under the Securities Act registering the offering of senior secured notes (the "Exchange Securities") identical in all material respects to the Offered Securities (except that the Exchange Securities will not contain terms with respect to transfer restrictions) to be offered in exchange for the Offered Securities (the "Exchange Offer") and (ii) under certain circumstances, a shelf registration statement pursuant to Rule 415 under the Securities Act (the "Shelf Registration Statement"). The Company hereby agrees with the Purchasers as follows: 2. Representations and Warranties of the Company. The Company represents and warrants to, and agrees with, the several Purchasers that: (a) A preliminary offering circular has been prepared and a final offering circular relating to the Offered Securities will be prepared by the Company. Such preliminary offering circular and offering circular, as supplemented as of the date of this Agreement, together with the documents listed in Schedule B hereto and any other document approved by the Company for use in connection with the contemplated resale of the Offered Securities, are hereinafter collectively referred to as the "Offering Document". On the date of this Agreement, 1 the perliminary offering circular does not include and the final offering circular in the form used by the Purchasers to confirm sales and on the Closing Date will not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The preceding sentence does not apply to statements in or omissions from the Offering Document based upon written information furnished to the Company by any Purchaser through Credit Suisse First Boston Corporation ("CSFB") specifically for use therein, it being understood and agreed that the only such information is that described as such in Section 7(b). Except as disclosed in the Offering Document, on the date of this Agreement, the Company's Annual Report on Form 10-K most recently filed with the Commission and all subsequent reports (collectively, the "Exchange Act Reports") which have been filed by the Company with the Commission or sent to stock holders pursuant to the Securities Exchange Act of 1934 (the "Exchange Act") do not 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 under which they were made, not misleading. Such documents, when they were filed with the Commission, conformed in all material respects to the requirements of the Exchange Act and the rules and regulations of the Commission thereunder. The preceding sentence does not apply to statements in or omissions from the Offering Document based upon written information furnished to the Company by any Purchaser through CSFB specifically for use therein, it being understood and agreed that the only such information is that described as such in Section 7(b). (b) The Company has been duly incorporated and is an existing corporation in good standing under the laws of the State of Delaware, with power and authority (corporate and other) to own its properties and conduct its business as described in the Offering Document; and the Company is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company and its Subsidiaries (as defined below), taken as a whole. (c) Each Subsidiary of the Company (i) other than those Subsidiaries specified in clause (ii) of this paragraph (2)(c) has been duly incorporated, is validly existing as a corpora tion in good standing under the laws of the jurisdiction of its incorporation, and has corporate power and authority to own its property and to conduct its business as described in the Offering Document or (ii) that is not a corporation is a limited partnership, has been duly formed and is validly existing as a limited partnership in good standing under the laws of the jurisdiction of its formation, and has full power and authority to own its property and to conduct its business as described in the Offering Document; and, in either case, is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property required such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company and its Subsidiaries, taken as a whole; and the Company is not a general partner in any partnership. As used herein, the term "Subsidiary" shall have the meaning ascribed to it in the Indenture. (d) The Indenture has been duly authorized by the Company; the Offered Securities have been duly authorized by the Company; and when the Offered Securities are delivered and paid for pursuant to this Agreement and the Indenture on the Closing Date (as defined below), the Indenture will have been duly executed and delivered (assuming due authorization, execution and delivery by the Trustee), such Offered Securities will have been duly executed, authenticated, issued and delivered (assuming authentication by the Trustee in accordance with the provisions of the Indenture) and will conform to the description thereof contained in 2 the Offering Document and the Indenture and such Offered Securities will constitute valid and legally binding obligations of the Company (and the Offered Securities will be entitled to the benefits in the Indenture), enforceable in accordance with their terms, except as (i) the enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and (ii) rights of acceleration and the availability of equitable remedies may be limited by equitable principles of general applicability. (e) Except as disclosed in the Offering Document, there are no contracts, agreements or understandings between the Company and any person that would give rise to a valid claim against the Company or any Purchaser for a brokerage commission, finder's fee or other like payment with respect to this Offering. (f) The Registration Rights Agreement has been duly authorized, executed and delivered by the Company and (assuming due authorization, execution and delivery by the Purchasers) constitutes a valid and binding agreement of the Company, enforceable in accor dance with its terms except as (i) the enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and (ii) rights of acceleration and the availability of equitable remedies may be limited by equitable principles of general ap plicability. (g) No consent, approval, authorization, or order of, or filing with, any governmental agency or body or any court is required for the consummation of the transactions contemplat ed by this Agreement in connection with the issuance and sale of the Offered Securities by the Company, except such as may be required by (i) the securities or Blue Sky laws of the various states in connection with the offer and sale of the Offered Securities and (ii) the securities or Blue Sky laws of the various states and the Securities Act in connection with the offer of the Exchange Securities. (h) The execution, delivery and performance of the Indenture, this Agreement, the Registration Rights Agreement, and the issuance and sale of the Offered Securities and compliance with the terms and provisions thereof will not result in a breach or violation of any of the terms and provisions of, or constitute a default under, any statute, any rule, regulation or order of any governmental agency or body or any court, domestic or foreign, having jurisdiction over the Company or any Subsidiary of the Company or any of their properties, or any agreement or instrument to which the Company or any such Subsidiary is a party or by which the Company or any such Subsidiary is bound or to which any of the properties of the Company or any such Subsidiary is subject, or the charter or by-laws of the Company or any such Subsidiary, and the Company has full power and authority to authorize, issue and sell the Offered Securities as contemplated by this Agreement. (i) This Agreement has been duly authorized, executed and delivered by the Company. (j) Except as disclosed in the Offering Document, the Company and its Subsidiaries have good and marketable title to all real properties and all other properties and assets owned by them, in each case free from liens, encumbrances and defects that would materially affect the value thereof or materially interfere with the use made or to be made thereof by them; and except as disclosed in the Offering Document, the Company and its Subsidiaries hold any leased real or personal property under valid and enforceable leases with no exceptions that would materially interfere with the use made or to be made thereof by them. (k) The Company and its Subsidiaries possess adequate certificates, authorities or permits issued by appropriate governmental agencies or bodies necessary to conduct the 3 business now operated by them and have not received any notice of proceedings relating to the revocation or modification of any such certificate, authority or permit that, if determined adversely to the Company or any of its Subsidiaries, would individually or in the aggregate have a material adverse effect on the Company and its Subsidiaries taken as a whole. (l) No labor dispute with the employees of the Company or any Subsidiary exists or, to the knowledge of the Company, is imminent that might have a material adverse effect on the Company and its Subsidiaries taken as a whole. (m) Except as disclosed in the Offering Document, neither the Company nor any of its Subsidiaries is in violation of any statute, any rule, regulation, decision or order of any governmental agency or body or any court, domestic or foreign, relating to the use, disposal or release of hazardous or toxic substances or relating to the protection or restoration of the environment or human exposure to hazardous or toxic substances (collectively, "environmen tal 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 on the Company and its Subsidiaries taken as a whole; and the Company is not aware of any pending investigation which might lead to such a claim. (n) Except as disclosed in the Offering Document, there are no pending actions, suits or proceedings against or affecting the Company, any of its Subsidiaries or any of their respective properties that, if determined adversely to the Company or any of its Subsidiaries, would individually or in the aggregate have a material adverse effect on the condition (financial or other), business, properties or results of operations of the Company and its Subsidiaries taken as a whole, or would materially and adversely affect the ability of the Company to perform its obligations under the Indenture or this Agreement, or which are otherwise material in the context of the sale of the Offered Securities; and no such actions, suits or proceedings are threatened or, to the Company's knowledge, contemplated. (o) The financial statements included in the Offering Document present fairly the financial position of the Company and its consolidated Subsidiaries as of the dates shown and their results of operations and cash flows for the periods shown, and, except as otherwise disclosed in the Offering Document, such financial statements have been prepared in confor mity with the generally accepted accounting principles in the United States applied on a consistent basis and the assumptions used in preparing the pro forma financial statements included in the Offering Document provide a reasonable basis for presenting the significant effects directly attributable to the transactions or events described therein, the related pro forma adjustments give appropriate effect to those assumptions, and the pro forma columns therein reflect the proper application of those adjustments to the corresponding historical financial statement amounts. (p) The statistical and market-related data (other than market-related data and statistical data provided by the Company) included in the Offering Document are based on or derived from sources which the Company believes to be reliable and accurate, it being understood, however, that the Company has conducted no independent investigation of the accuracy thereof. (q) Except as disclosed in the Offering Document, since the date of the latest audited financial statements included in the Offering Document there has been no material adverse change, nor any development or event involving a prospective material adverse change, in the 4 condition (financial or other), business, properties or results of operations of the Company and its Subsidiaries taken as a whole, and, except as disclosed in or contemplated by the Offering Document, there has been no dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock. (r) The Company is not 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 (the "Investment Company Act"), nor is it a closed-end investment company required to be registered, but not registered, thereunder; and the Company is not and, after giving effect to the offering and sale of the Offered Securities and the application of the proceeds thereof as described in the Offering Document, will not be an "investment company" as defined in the Investment Company Act. (s) No securities of the same class (within the meaning of Rule 144A(d)(3) under the Securities Act) as the Offered Securities are listed on any national securities exchange registered under Section 6 of the Exchange Act or quoted in a U.S. automated inter-dealer quotation system. (t) The offer and sale of the Offered Securities by the Company to the several Purchasers in the manner contemplated by this Agreement will be exempt from the registra tion requirements of the Securities Act by reason of Section 4(2) thereof; and it is not necessary to qualify the Indenture in respect of the Offered Securities under the United States Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). (u) Neither the Company, nor any of its affiliates (as defined in Rule 501(b) of Regulation D under the Securities Act), nor any person acting on its or their behalf (i) has, within the six-month period prior to the date hereof, offered or sold in the United States or to any U.S. person (as such terms are defined in Regulation S under the Securities Act) the Offered Securities or any security of the same class or series as the Offered Securities or (ii) has offered or will offer or sell the Offered Securities (A) in the United States by means of any form of general solicitation or general advertising within the meaning of Rule 502(c) under the Securities Act or (B) with respect to any securities sold in reliance on Rule 903 of Regulation S, by means of any directed selling efforts within the meaning of Rule 902(b) of Regulation S. The Company has not entered and will not enter into any contractual arrange ment with respect to the distribution of the Offered Securities except for this Agreement. (v) Neither the Company nor any of its Subsidiaries is (i) subject to regulation as a "holding company" or a "Subsidiary company" of a holding company or a "public utility company" under Section 2(a) of the Public Utility Holding Company Act of 1935 ("PUHCA"), (ii) subject to regulation under the Federal Power Act, as amended ("FPA"), other than as contemplated by 18 C.F.R. Sec 292.601(c) or (iii) subject to any state law or regulation with respect to rates or the financial or organizational regulation of electric utilities, other than as contemplated by 18 C.F.R. Sec 292.602(c). (w) Each of the power generation projects in which the Company or its Subsidiaries has an interest (the "Projects") which is subject to the requirements under the Public Utility Regulatory Policies Act of 1978, as amended (16 U.S.C. Sec 796, et seq.), and the regulations of the Federal Energy Regulatory Commission ("FERC") promulgated thereunder, as amend ed from time to time, necessary to be a "qualifying cogeneration facility" and/or a "qualifying small power production facility" meets such requirements. (x) The Company is subject to Section 13 or 15(d) of the Exchange Act. 5 3. Purchase, Sale and Delivery of Offered Securities. On the basis of the representations, warranties and agreements herein contained, but subject to the terms and conditions herein set forth, the Company agrees to sell to the Purchasers, and the Purchasers agree, severally and not jointly, to purchase from the Company, at a purchase price of 99.6353% of the principal amount thereof plus accrued interest from July 8, 1997 to the Closing Date (as hereinafter defined) the respective principal amount of Offered Securities set forth opposite the names of the several Purchasers in Schedule A hereto. The Company will deliver against payment of the purchase price the Offered Securities in the form of one or more permanent global securities in definitive form (the "Global Securities") deposited with the Trustee as custodian for The Depository Trust Company ("DTC") and registered in the name of Cede & Co., as nominee for DTC. Interests in any permanent Global Securities will be held only in book-entry form through DTC, except in the limited circumstances described in the Offering Document. Payment for the Offered Securities shall be made by the Purchasers in Federal (same day) funds by official check or checks or wire transfer to an account previously designated to CSFB by the Company at a bank acceptable to CSFB at the office of Skadden, Arps, Slate, Meagher & Flom LLP at 10:00 A.M. (New York time), on July 8, 1997, or at such other time not later than seven full business days thereafter as CSFB and the Company determine, such time being herein referred to as the "Closing Date", against delivery to the Trustee as custodian for DTC of the Global Securities representing all of the Offered Securities. The Global Securities will be made available for inspection at the above office of Skadden, Arps, Slate, Meagher & Flom LLP at least 24 hours prior to the Closing Date. 4. Representations by Purchasers; Resale by Purchasers. (a) Each Purchaser severally represents and warrants to the Company that it is an "accredited investor" within the meaning of Regulation D under the Securities Act. (b) Each Purchaser severally acknowledges that the Offered Securities have not been registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in accordance with Regulation S or pursuant to an exemption from the registration requirements of the Securities Act. Each Purchaser severally represents and agrees that it has offered and sold the Offered Securities and will offer and sell the Offered Securities (i) as part of their distribution at any time and (ii) otherwise until the later of the commencement of the offering and the Closing Date, only in accordance with Rule 144A ("Rule 144A") or Rule 903 under the Securities Act. Accord ingly, neither such Purchaser nor its affiliates, nor any persons acting on its or their behalf, have engaged or will engage in any directed selling efforts with respect to the Offered Securities, and such Purchaser, its affiliates and all persons acting on its or their behalf have complied and will comply with the offering restrictions requirement of Regulation S. Terms used in this paragraph (b) have the meanings given to them by Regulation S. (c) Each Purchaser severally agrees that it and each of its affiliates has not entered and will not enter into any contractual arrangement with respect to the distribution of the Offered Securities except for any such arrangements with the other Purchasers or affiliates of the other Purchasers or with the prior written consent of the Company. (d) Each Purchaser severally agrees that it and each of its affiliates will not offer or sell the Offered Securities by means of any form of general solicitation or general advertising, within the meaning of Rule 502(c) under the Securities Act, including, but not limited to (i) any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over television or radio, or (ii) any seminar or meeting whose attendees have been invited by any general solicitation or general advertising. Each Purchaser 6 severally agrees, with respect to resales made in reliance on Rule 144A of any of the Offered Securities, to deliver either with the confirmation of such resale or otherwise prior to settlement of such resale a notice to the effect that the resale of such Offered Securities has been made in reliance upon the exemption from the registration requirements of the Securities Act provided by Rule 144A. 5. Certain Agreements of the Company. The Company agrees with the several Purchasers that: (a) The Company will arrange for the qualification of the Offered Securities for sale and the determination of their eligibility for investment under the laws of such states in the United States as CSFB designates and will continue such qualifications in effect so long as required for the resale of the Offered Securities by the Purchasers provided that the Company will not be required to qualify as a foreign corporation or to file a general consent to service of process in any such state. (b) During the period of two years hereafter, the Company will furnish to CSFB and, upon request, to each of the other Purchasers, as soon as practicable after the end of each fiscal year, a copy of its annual report to shareholders for such year; and the Company will furnish to CSFB and, upon request, to each of the other Purchasers (i) as soon as available, a copy of each report and any definitive proxy statement of the Company filed with the Commission under the Exchange Act or mailed to shareholders and (ii) from time to time, such other information concerning the Company as CSFB may reasonably request. (c) During the period of two years after the Closing Date, the Company will, upon request, furnish to CSFB, each of the other Purchasers and any holder of Offered Securities a copy of the restrictions on transfer applicable to the Offered Securities. (d) During the period of two years after the Closing Date, the Company will not, and will not permit any of its affiliates (as defined in Rule 144 under the Securities Act) to, resell any of the Offered Securities that have been reacquired by any of them. (e) During the period of two years after the Closing Date, the Company will not be or become, 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 Investment Company Act, and is not, and will not be or become, a closed-end investment company required to be registered, but not registered, under the Investment Company Act. (f) The Company will pay all expenses incidental to the performance of its obliga tions under this Agreement, the Indenture and the Registration Rights Agreement, including (i) the fees and expenses of the Trustee and its professional advisers; (ii) all expenses in connection with the execution, issue, authentication, packaging and initial delivery of the Offered Securities, the preparation and printing of this Agreement, the Offered Securities, the Indenture, the Registration Rights Agreement, the Offering Document and amendments and supplements thereto, and any other document relating to the issuance, offer, sale and delivery of the Offered Securities; (iii) the cost of qualifying the Offered Securities for trading in the Private Offerings, Resale and Trading through Automated Linkages (PORTAL) market and any expenses incidental thereto and (iv) the cost of any advertising approved by the Company in connection with the issue of the Offered Securities. The Company will reimburse the Purchasers for any expenses (including fees and disbursements of counsel) incurred by them in connection with qualification of the Offered Securities for sale under the laws of such jurisdictions as CSFB designates and the printing of memoranda relating thereto, for any fees charged by investment rating agencies for the rating of the Securities, for all travel expenses 7 of the Purchasers and the Company's officers and employees and any other expenses of the Purchasers and the Company in connection with attending or hosting meetings with prospec tive purchasers of the Offered Securities and for expenses incurred in distributing the Offering Document (including any amendments and supplements thereto) to the Purchasers. (g) In connection with the offering, until CSFB shall have notified the Company and the other Purchasers of the completion of the resale of the Offered Securities, neither the Company nor any of its affiliates has or will, either alone or with one or more other persons, bid for or purchase for any account in which it or any of its affiliates has a beneficial interest any Offered Securities or attempt to induce any person to purchase any Offered Securities; and neither it nor any of its affiliates will make bids or purchases for the purpose of creating actual, or apparent, active trading in, or of raising the price of, the Offered Securities. (h) Except as contemplated by the Indenture and the Registration Rights Agreement, for a period of 30 days after the date of the initial offering of the Offered Securities by the Purchasers, the Company will not offer, sell, contract to sell, pledge, or otherwise dispose of, directly or indirectly, any United States dollar-denominated debt securities issued or guaran teed by the Company and having a maturity of more than one year from the date of issue. The Company will not at any time offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any securities under circumstances where such offer, sale, pledge, contract or disposition would cause the exemption afforded by Section 4(2) of the Securities Act to cease to be applicable to the offer and sale of the Securities. 6. Conditions of the Obligations of the Purchasers. The obligations of the several Purchas ers to purchase and pay for the Offered Securities will be subject to the accuracy of the representa tions and warranties on the part of the Company herein, to the accuracy of the statements of officers of the Company made pursuant to the provisions hereof, to the performance by the Company of its obligations hereunder and to the following additional conditions precedent: (a) The Purchasers shall have received: (i) letters, dated the date of this Agreement and the Closing Date, of Arthur Andersen substantially in the form of Exhibit A hereto to the Purchasers concerning certain of the financial information with respect to the Company as set forth in the Offering Document; (ii)letters, dated the date of this Agreement and the Closing Date, of Moss Adams LLP substantially in the form of Exhibit B hereto to the Purchasers concerning certain of the financial information with respect to the Company set forth in the Offering Document; and (iii) letters, dated the date of this Agreement and the Closing Date, of Ernst & Young LLP substantially in the form of Exhibit C hereto to the Purchasers concerning certain of the financial information with respect to the company as set forth in the Offering Docu ment. (b) Subsequent to the execution and delivery of this Agreement and prior to the Closing Date, there shall not have occurred (i) any change, or any development or event involving a prospective change, in the condition (financial or other), business, properties or results of operations of the Company or its Subsidiaries which, in the judgment of a majority in interest of the Purchasers, including CSFB, is material and adverse and makes it impractical or inadvisable to proceed with completion of the offering or the sale of and payment for the Offered Securities; (ii) any downgrading in the rating of any debt securities of the Company by 8 any "nationally recognized statistical rating organization" (as defined for purposes of Rule 436(g) under the Securities Act), or any public announcement that any such organization has under surveillance or review its rating of any debt securities of the Company (other than an announcement with positive implications of a possible upgrading, and no implication of a possible downgrading, of such rating); (iii) any suspension or limitation of trading in securities generally on the New York Stock Exchange or any setting of minimum prices for trading on such exchange, or any suspension of trading of any securities of the Company on any exchange or in the over-the-counter market; (iv) any banking moratorium declared by U.S. Federal or, New York authorities; or (v) any outbreak or escalation of major hostilities in which the United States is involved, any declaration of war by Congress or any other substantial national or international calamity or emergency if, in the judgment of a majority in interest of the Purchasers including CSFB, the effect of any such outbreak, escalation, declaration, calamity or emergency makes it impractical or inadvisable to proceed with completion of the offering or sale of and payment for the Offered Securities. (c) You shall have received on the Closing Date a certificate or certificates, dated the Closing Date and signed by an executive officer of the Company, to the effect set forth in clause (b)(ii) above and to the effect that the representations and warranties of the Company contained in this Agreement are true and correct as of the Closing Date and that the Company has complied with all of the agreements and satisfied all of the conditions on its part to be performed or satisfied on or before the Closing Date. The officers signing and delivering such certificate or certificates may rely upon the best of their knowledge as to proceedings threatened. (d) The Purchasers shall have received an opinion, dated the Closing Date, of Brobeck, Phleger & Harrison LLP, counsel for the Company, that: (i) the Company has been duly incorporated, is validly existing as a corporation in good standing under the laws of the State of Delaware, has the corporate power and au thority to own its property and to conduct its business as described in the Offering Document, and is duly qualified to transact business and is in good standing in each juris diction in which the conduct of its business or its ownership or leasing of property re quires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company and its Subsid iaries, taken as a whole; (ii)this Agreement has been duly authorized, executed and delivered by the Company; (iii) the Indenture has been duly authorized, executed and delivered by the Company and is a valid and binding agreement of the Company, enforceable in accordance with its terms except as (a) the enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and (b) rights of acceleration and the availability of equitable remedies may be limited by equitable principles of general applica bility; and the Indenture is in such form that it may be qualified under the Trust Inden ture Act, in compliance with the terms of the provisions of the Registration Rights Agree ment without material modification; (iv) the Offered Securities have been duly authorized by the Company and, when the Offered Securities are executed by the Company and authenticated by the Trustee in accordance with the provisions of the Indenture and delivered to and paid for by the Purchasers in accordance with the terms of this Agreement, the Offered Securities will be entitled to 9 the benefits of the Indenture and will be valid and binding obligations of the Company, enforceable in accordance with their terms except as (a) the enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and (b) rights of acceleration and the availability of equitable remedies may be limited by equitable principles of general applicability; (v) the Registration Rights Agreement has been duly authorized, executed and delivered by the Company and (assuming due authorization, execution and delivery by the Purchasers) constitutes a valid and binding agreement of the Company, enforceable in accordance with its terms except as (i) the enforceability thereof may be limited by bank ruptcy, insolvency or similar laws affecting creditors' rights generally and (ii) rights of acceleration and the availability of equitable remedies may be limited by equitable prin ciples of general applicability; (vi) the execution and delivery by the Company of, and the performance by the Company of its obligations under, this Agreement, the Offered Securities, the Indenture and the Registration Rights Agreement will not contravene any provision of applicable law or the certificate of incorporation, bylaws, partnership agreement or other organizational documents of the Company or any Subsidiary of the Company or, to such counsel's knowledge, any agreement or other instrument binding upon the Company or any Subsid iary of the Company that is material to the Company or its Subsidiaries taken as a whole, or, to such counsel's knowledge, any judgment, order or decree of any governmental body, agency or court having jurisdiction over the Company or any Subsidiary of the Company, and no consent, approval, authorization or order of or qualification with any governmental body or agency is required for the performance by the Company of its obligations under this Agreement, the Offered Securities, the Indenture and the Registra tion Rights Agreement, except such as may be required by (i) the securities or Blue Sky laws of the various states in connection with the offer and sale of the Offered Securities and (ii) the securities or Blue Sky laws of the various states and the Securities Act in connection with the offer of the Exchange Securities; (vii) the statements in the Offering Document under the captions "Description of Notes," "Plan of Distribution" and "Transfer Restrictions," insofar as such statements constitute summaries of the legal matters, documents and proceedings referred to therein, fairly present the information called for with respect to such legal matters, documents and proceedings and fairly summarize the matters referred to therein; (viii) after due inquiry, such counsel does not know of any legal or governmental proceedings pending or threatened to which the Company or any of its Subsidiaries is a party or to which any of the properties of the Company or any of its Subsidiaries is subject other than proceedings fairly summarized in all material respects in the Offering Document and proceedings which such counsel believes are not likely to have a material adverse effect on the Company and its Subsidiaries taken as a whole, or on the power or ability of the Company to perform its obligations under this Agreement, the Indenture, the Offered Securities and the Registration Rights Agreement or to consummate the transac tions contemplated by the Offering Document; (ix) based upon the representations, warranties and agreements of the Company in paragraphs 2(s) and 2(u) of this Agreement and of the Purchasers in paragraph 4 of this Agreement and on the representations and agreements in the Offering Document under the caption "Transfer Restrictions," it is not necessary in connection 10 with the offer, sale and delivery of the Offered Securities to the Purchasers under this Agreement or in connection with the initial resale of such Offered Securities by the Purchasers in accordance with paragraph 4 of this Agreement to register the Offered Securities under the Securities Act or to qualify the Indenture under the Trust Indenture Act, it being understood that no opinion is expressed as to any subsequent resale of any Offered Securities; and (x) the Company is not an "investment company" or an entity "controlled" by an "in vestment company," as such terms are defined in the Investment Company Act of 1940, as amended. Such counsel shall also include a statement to the effect that no facts have come to such counsel's attention that would lead such counsel to believe that (except for financial statements, sched ules and other financial and statistical information as to which such counsel need not express any be lief) the Offering Document when issued did not, and as of the date such opinion is delivered does not, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. (e) You shall have received on the Closing Date an opinion of Joseph E. Ronan, Jr., General Counsel of the Company, to the effect that: (i) each Subsidiary of the Company (x) other than those Subsidiaries specified in clause (y) of this paragraph (6)(e)(i) has been duly incorporated, is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, and has corporate power and authority to own its property and to conduct its business as described in the Offering Document or (y) that is not a corporation is a limited partner ship, has been duly formed and is validly existing as a limited partnership in good standing under the laws of the jurisdiction of its formation, and has full power and authority to own its property and to conduct its business as described in the Offering Document and, in either case, is duly qualified to transact business and is in good stand ing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company and its Subsidiaries, taken as a whole; and the Company is not a general partner in any partner ship; (ii)the Company and each of its Subsidiaries has obtained all necessary consents, authorizations, approvals, orders, licenses, certificates and permits of and from, and has made all declarations and filings with, all foreign, federal, state, local and other gov ernmental authorities, all self-regulatory organizations and all courts and other tribunals, required to own, lease, license, operate and use its properties and assets and to conduct its business in the manner described in the Offering Document, except to the extent that the failure to obtain, declare or file would not have a material adverse effect on the Company and its Subsidiaries, taken as a whole; (iii) the contracts and agreements of the Company and its Subsidiaries and affiliates described in the Offering Document under "Business -- Description of Facilities -- Power Plants" conform in all material respects to the descriptions thereof contained in the Offering Document, and the statements in the Offering Document under the captions "Management," "Business --- Legal Proceedings" and "Business -- Government Regula tions" in each case insofar as such statements constitute summaries of the legal matters, documents and proceedings referred to therein, fairly present the information called for with respect to such legal matters, documents and proceedings and fairly summarize the matters referred to therein; 11 (iv) such counsel is of the opinion that the Company and each Subsidiary of the Company (i) is in compliance with any and all applicable environmental laws, (ii) has received all permits, licenses or other approvals required of it under applicable environ mental laws to conduct its business and (iii) is in compliance with all terms and conditions of any such permit, license or approval, except where such noncompliance with environ mental laws, failure to receive required permits, licenses or other approvals or failure to comply with the terms and conditions of such permits, licenses or approvals would not, singly or in the aggregate, have a material adverse effect on the Company; and (v) neither the Company nor any of its Subsidiaries is (i) subject to regulation as a "holding company" or a "Subsidiary company" of a holding company or an "affiliate" of a Subsidiary or holding company or a "public utility company" under Section 2(a) of PUHCA, (ii) subject to regulation under the FPA, other than as contemplated by 18 C.F.R. Sec 292.601(c) or (iii) subject to any state law or regulation with respect to the rates or the financial or organizational regulation of electric utilities, other than as contemplated by 18 C.F.R. Sec 292.602(c). (f) You shall have received on the Closing Date an opinion of Skadden, Arps, Slate, Meagher & Flom LLP, special counsel for the Purchasers, dated the Closing Date, covering the matters referred to in subparagraphs (ii), (iii), (iv), (v), (vii) (but only as to the statements in the "Description of the Senior Notes," "Plan of Distribution" and "Transfer Restrictions") and (ix), and subparagraph (x) of paragraph (d) above. With respect to the final subparagraph of paragraph (d) above, Brobeck, Phleger & Harrison LLP and Skadden, Arps, Slate, Meagher & Flom LLP may state that their belief is based upon their participation in the preparation of the Offering Document and any amendments or supplements thereto and review and discussion of the contents thereof, but are without independent check or verification except as specified. With respect to matters of fact, such counsel may rely on certificates of officers of the Company and of governmental officials, in which case their opinion is to state that they are so doing and that the Purchasers are justified in relying on such opinions or certificates and copies of said opinions or certificates are to be attached to the opinion. The opinion of Brobeck, Phleger & Harrison LLP described in paragraph (d) above shall be rendered to you at the request of the Company and shall so state therein. The Company will furnish the Purchasers and their special counsel with such conformed copies of such opinions, certificates, letters and documents as the Purchasers and their special counsel reasonably request. CSFB may in its sole discretion waive on behalf of the Purchasers compliance with any conditions to the obligations of the Purchasers hereunder. 7. Indemnification and Contribution. (a) The Company will indemnify and hold harmless each Purchaser against any losses, claims, damages or liabilities, joint or several, to which such Purchaser may become subject, under the Securities Act or the Exchange Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Offering Document, or any amendment or supplement thereto, or any related preliminary offering circular 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 in order to make the statements therein, in light of the circumstances under which they were made, not misleading, and will reimburse each Purchaser for any legal or other expenses reasonably incurred by such Purchaser in connection with investigating or defending any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability 12 arises out of or is based upon an untrue statement or alleged untrue statement in or omission or alleged omission from any of such documents in reliance upon and in conformity with written information furnished to the Company by any Purchaser through CSFB specifically for use therein, it being understood and agreed that the only such information consists of the information described as such in paragraph (b) below. The indemnity agreement contained in this Section 7(a) with respect to any untrue statements or omission in any preliminary offering circular shall not inure to the benefit of any Purchaser if the person asserting such losses, liabilities, claims, damages, or expenses purchased the Offered Securities which is the subject thereof if at or prior to the written confirmation of the initial resale of the Offered Securities a copy of the final offering circular (or the final offering circular as amended or supplemented) was not sent or delivered to such person and the final offering circular (or the final offering circular as amended or supplemented) would have cured the defect giving rise to such losses, claims, damages or liabilities. (b) Each Purchaser will severally and not jointly indemnify and hold harmless the Company, its directors, its officers and each person, if any, who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, against any losses, claims, damages or liabilities to which the Company may become subject, under the Securities Act or the Exchange Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Offering Document, or any amendment or supplement thereto, or any related preliminary offering circular, or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by such Purchaser through CSFB specifically for use therein, and will reimburse any legal or other expenses reasonably incurred by the Company in connection with investigating or defending any such loss, claim, damage, liability or action as such expenses are incurred, it being understood and agreed that the only such information furnished by any Purchaser consists of the following information in the Offering Document furnished on behalf of each Purchaser: (i) the last paragraph at the bottom of the cover page concerning the terms of the offering by the Purchasers, (ii) the legend on page 3 concerning the stabilization and overallotment by the Purchasers, (iii) the third sentence contained in the second paragraph under the caption "Plan of Distribution" concerning the role of the Purchasers in the offering, (iv) the second sentence of the third paragraph under the caption "Plan of Distribution" concerning sales of the Offered Securities, (v) the fourth paragraph under the caption "Plan of Distribution" concerning sales of the Offered Securities to persons in the United Kingdom, (vi) the second sentence of the sixth paragraph under the caption "Plan of Distribution" concerning the intention of the Purchasers to make a market in the Offered Securities, (vii) the first sentence of the seventh paragraph under the caption "Plan of Distribution" concerning transactions engaged in by the Company and the Purchasers and their affiliates, (viii) the third sentence of the seventh paragraph under the caption "Plan of Distribution" concerning the affiliation of the Bank of Novia Scotia with one of the Purchasers, and (ix) the first sentence of the eighth paragraph under the caption "Plan of Distribution" concerning overallotments and stabilizing. (c) Promptly after receipt by an indemnified party under this paragraph of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under paragraph (a) or (b) above, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party otherwise than under paragraph (a) or (b) above. In case any such action is brought against any indemnified party and it notifies the indemnify ing party of the commencement thereof, the indemnifying party will be entitled to participate therein 13 and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this paragraph for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party unless such settlement includes an uncondition al release of such indemnified party from all liability on any claims that are the subject matter of such action. (d) If the indemnification provided for in this paragraph is unavailable or insufficient to hold harmless an indemnified party under paragraph (a) or (b) above, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities referred to in paragraph (a) or (b) above (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Purchasers on the other from the offering of the Offered Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and the Purchasers on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities as well as any other relevant equitable consider ations. The relative benefits received by the Company on the one hand and the Purchasers on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company bear to the total discounts and commissions received by the Purchasers from the Company under this Agreement. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Purchasers and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this paragraph (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 paragraph (d). Notwithstanding the provisions of this paragraph (d) no Purchaser shall be required to contribute any amount in excess of the amount by which the total price at which the Offered Securities purchased by it were resold exceeds the amount of any damages which such Purchaser has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. The Purchasers' obligations in this paragraph (d) to contribute are several in proportion to their respective purchase obligations and not joint. (e) The obligations of the Company under this paragraph shall be in addition to any liability which the Company may otherwise have and shall extend, upon the same terms and condi tions, to each person, if any, who controls any Purchaser within the meaning of the Securities Act or the Exchange Act; and the obligations of the Purchasers under this paragraph shall be in addition to any liability which the respective Purchasers may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act. 8. Default of Purchasers. If any Purchaser or Purchasers default in their obligations to purchase Offered Securities hereunder and the aggregate principal amount of the Offered Securities that such defaulting Purchaser or Purchasers agreed but failed to purchase does not exceed 10% of the total principal amount of the Offered Securities, CSFB may make arrangements satisfactory to the Company 14 for the purchase of such Offered Securities by other persons, including any of the Purchas ers, but if no such arrangements are made by the Closing Date, the non-defaulting Purchasers shall be obligated severally, in proportion to their respective commitments hereunder, to purchase the Offered Securities that such defaulting Purchasers agreed but failed to purchase on such Closing Date. If any Purchaser or Purchasers so default and the aggregate principal amount of the Offered Securities with respect to which such default or defaults occur exceeds 10% of the total principal amount of the Offered Securities and arrangements satisfactory to CSFB and the Company for the purchase of such Offered Securities by other persons are not made within 36 hours after such default, this Agreement will terminate without liability on the part of any non-defaulting Purchaser or the Company, except as provided in paragraph 9. As used in this Agreement, the term "Purchaser" includes any person substituted for a Purchaser under this Section. Nothing herein will relieve a defaulting Purchaser from liability for its default. 9. Survival of Certain Representations and Obligations. The respective indemnities, agree ments, representations, warranties and other statements of the Company or its officers and of the several Purchasers set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation, or statement as to the results thereof, made by or on behalf of any Purchaser, the Company or any of their respective representatives, officers or directors or any controlling person, and will survive delivery of and payment for the Offered Securities. If this Agreement is terminated pursuant to paragraph 8 or if for any reason the purchase of the Offered Securities by the Purchasers is not consummated, the Company shall remain responsible for the expenses to be paid or reimbursed by it pursuant to paragraph 5 and the respective obligations of the Company and the Purchasers pursuant to paragraph 7 shall remain in effect. If the purchase of the Offered Securities by the Purchasers is not consummated for any reason other than solely because of the termination of this Agreement pursuant to paragraph 8 or the occurrence of any event specified in clause (iii), (iv) or (v) of paragraph 6(b), the Company will reimburse the Purchasers for all out-of-pocket expenses (including fees and disbursements of counsel) reasonably incurred by them in connection with the offering of the Offered Securities. 10. Notices. All communications hereunder will be in writing and, if sent to the Purchasers will be mailed, delivered or telegraphed and confirmed to the Purchasers c/o Credit Suisse First Boston Corporation, 11 Madison Avenue, New York, N.Y. 10010, Attention: Investment Banking Department Transactions Advisory Group, or, if sent to the Company, will be mailed, delivered or telegraphed and confirmed to it at Calpine Corporation 50 West San Fernando Street, San Jose, California 95113 Attention: Joseph E. Ronan, Jr.; provided, however, that any notice to a Purchaser pursuant to paragraph 7 will be mailed, delivered or telegraphed and confirmed to such Purchaser. 11. Successors. This Agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors and the controlling persons referred to in paragraph 7, and no other person will have any right or obligation hereunder, except that holders of Offered Securities shall be entitled to enforce the agreements for their benefit contained in the second and third sentences of paragraph 5(c) hereof against the Company as if such holders were parties hereto. 12. Representation of Purchasers. CSFB will act for the several Purchasers in connection with this purchase, and any action under this Agreement taken by CSFB will be binding upon all the Purchasers. 13. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same Agreement. 15 14. Applicable Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York without regard to principles of conflicts of laws. 16 If the foregoing is in accordance with the Purchasers' understanding of our agreement, kindly sign and return to the Company one of the counterparts hereof, whereupon it will become a binding agreement between the Company and the several Purchasers in accordance with its terms. Very truly yours, CALPINE CORPORATION By: Name: Title: The foregoing Purchase Agreement is hereby confirmed and accepted as of the date first above written. By: CREDIT SUISSE FIRST BOSTON CORPORATION Acting on behalf of themselves and as the Representative of the several Purchasers. By: Name: Title: 17 SCHEDULE A Principal Amount of Securities Purchaser Credit Suisse First Boston Corporation................. $ 100,000,000 Morgan Stanley & Co. Incorporated ..................... $ 30,000,000 Salomon Brothers Inc................................... $ 30,000,000 Scotia Capital Markets (USA) Inc....................... $ 20,000,000 BancAmerica Securities, Inc............................ $ 10,000,000 CIBC Wood Gundy Securities Corp........................ $ 10,000,000 ----------------------- Total.............. $ 200,000,000 ======================= 18 SCHEDULE B List of Documents Delivered with Offering Circular None 19 EX-10.2.6 8 PURCHASE AND SALE AGREEMENT - ENRON POWER CORP PURCHASE AND SALE AGREEMENT THIS PURCHASE AND SALE AGREEMENT (this "Agreement") for the purchase and sale of all of the shares of Class A Common Stock of Enron/Dominion Cogen Corp., a Delaware corporation (the "Company"), is made as of the 27th day of March, 1997, by and between Enron Power Corp., a Delaware corporation ("Seller"), and Calpine Finance Company, a Delaware corporation ("Buyer"). WHEREAS, Seller is the owner of 7,095 shares of Class A Common Stock of the Company, which constitutes all of the issued and outstanding shares of Class A Common Stock of the Company (the "Class A Common Stock"); and WHEREAS, Seller wishes to sell all of the Class A Common Stock, and Buyer wishes to purchase all of the Class A Common Stock, on the terms herein set forth; and WHEREAS, concurrently with the purchase of the Class A Common Stock pursuant to this Agreement, Buyer wishes to purchase the Long Term Debt (hereinafter defined) at the Facilities (hereinafter defined) from the lenders thereof pursuant to an Assignment Agreement to be entered into among Buyer and such lenders (the "Assignment of Notes"); NOW, THEREFORE, in consideration of the mutual promises made herein, and subject to the conditions hereinafter set forth, the parties agree as follows: ARTICLE I DEFINITIONS 1.1 Definitions. The terms set forth below shall have the meanings ascribed to them in this Article I or in the part of this Agreement referred to below: Administrative Services Agreement: means the Administrative Services Agreement dated as of August 1, 1995, among ECT, the Company, EC5, Clear Lake and Cogenron. Affiliate: means with respect to an entity, any other entity controlling, controlled by or under common control with such entity. As used in this definition, the term "control," including the correlative term "controlling," "controlled by" and "under common control with" shall mean the possession, direct or indirect, of the power to direct or cause the direction of the management or policies of an entity, whether through ownership of voting securities, by contract or otherwise. For the avoidance of doubt, neither the Company nor any of the Subsidiaries is, nor shall be deemed to be, Affiliates of Seller. Agreement: as defined in the preamble. Assignment Agreements: as defined in Section 2.2. -1- Assignment and Assumption Agreement: as defined in Section 2.2. Assignment of Notes: as defined in the preamble. Auditor: as defined in Section 2.3. Average Severance Cost: as defined in Section 5.3.4. Base Purchase Price: as defined in Section 2.2 Best Efforts: means a party's best efforts in accordance with reasonable commercial practice and without the incurrence of unreasonable expense. Business Day: means any day other than a Saturday, a Sunday or a day on which banks in Houston, Texas are authorized or required by law to be closed. Buyer: as defined in the preamble. Buyer Indemnified Loss: as defined in Section 7.1. Buyer's Plans: as defined in Section 5.3.4. Bylaws: as defined in Section 4.1.7. Certificate of Incorporation: as defined in Section 4.1.7. Claim Notice: as defined in Section 7.4. Class A Common Stock: as defined in the preamble. Class B Common Stock: as defined in Section 4.1.5. Clear Lake: means Clear Lake Cogeneration Limited Partnership, a Texas limited partnership. Clear Lake Facility: the 377 megawatt gas-fired, combined-cycle power plant located in Pasadena, Texas and owned by Clear Lake. Clear Lake O & M Agreement: the Operations and Maintenance Agreement dated as of August 1, 1995, among EOC, the Company and Clear Lake. Closing: as defined in Article III. Closing Date: as defined in Article III. COBRA: as defined in Section 5.3.4. -2- Code: means the Internal Revenue Code of 1986, as amended, or any amending or superseding tax laws of the United States of America. Cogenron: means Cogenron Inc., a Delaware corporation. Cogen Venture: means Cogen Technologies NJ Venture, a New Jersey joint venture. Company: as defined in the preamble. Confidentiality Agreement: as defined in Section 5.2.3. Credit Support Obligations: as defined in Section 5.3.1. December 31 Balance Sheet: as defined in Section 4.1.9. Dominion: means Dominion Cogen, Inc., a Virginia corporation. Dominion Energy: means Dominion Energy, Inc., a Virginia corporation. Dominion Resources: means Dominion Resources, Inc. , a Virginia corporation. EC1: means Enron Cogeneration One Company, a Delaware corporation. EC3: means Enron Cogeneration Three Company, a Delaware corporation. EC5: means Enron Cogeneration Five Company, a Delaware corporation. ECT: means Enron Capital & Trade Resources Corp., a Delaware corporation. Effective Date: as defined in Section 2.3. Effective Date Balance Sheet: as defined in Section 2.3. EIPI: as defined in Section 5.3.4. Election Period: as defined in Section 7.4. Employee Schedule: as defined in Section 5.3.4. Environmental Legal Requirements: means any and all applicable Legal Requirements and orders, restrictions and authorizations of a Governmental Entity, including the Clean Air Act, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA"), the Federal Water Pollution Control Act, the Occupational Safety and Health Act of 1970, the Resource Conservation and Recovery Act of 1976 ("RCRA"), the Safe Drinking Water Act, the Toxic Substances Control Act, the Hazardous & Solid Waste Amendments Act of 1984, the -3- Superfund Amendments and Reauthorization Act of 1986, the Hazardous Materials Transportation Act, and any similar law, regulation, or requirement of any Governmental Entity; in each case as amended through and in effect on the date hereof. EOC: means Enron Operations Corp., a Delaware corporation. ERISA: means the Employee Retirement Income Security Act of 1974, as amended. Excluded Assets and Liabilities: as defined in Section 2.3. Facilities: the Clear Lake Facility and the Texas City Facility. Facilities Employees: as defined in Section 5.3.4. FERC: means the Federal Energy Regulatory Commission. Financial Statements: as defined in Section 4.1.9. GAAP: as defined in Section 2.3. Governmental Entity: means any court, governmental department, commission, council, board, agency or other instrumentality of the United States of America or any state, county, municipality or local government. Hazardous Substance: means any substance presently listed, defined, designated or classified as "hazardous substances" under CERCLA, "hazardous wastes" under RCRA, "hazardous materials" under the Hazardous Materials Transportation Act, or "toxic substances" under the Toxic Substances Control Act. HCC: Hoechst Celanese Chemical Corporation. HSR Act: means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. Indemnity Notice: as defined in Section 7.4. Indemnified Party: as defined in Section 7.4. Indemnifying Party: as defined in Section 7.4. Insurance: as defined in Section 4.1.20. Knowledge, when used in the phrases "to Seller's knowledge," "to Buyer's knowledge," or "to its [Seller's or Buyer's] knowledge" or "if Seller had knowledge" means, and shall be limited to, the actual knowledge of the appropriate individuals set forth for Seller or Buyer, respectively, on Schedule 1.1(A). -4- Legal Requirement: means all applicable laws, rules, regulations, codes, ordinances, permits, bylaws, variances, orders, conditions, and licenses of a Governmental Entity. Lien: means any lien, charge, mortgage, pledge, hypothecation, conditional sales contract, or security interest (other than any of the foregoing listed on or referenced in Schedule 4.1.10, governmental permits, licenses, consents and approvals, encumbrances imposed by federal or state securities laws and restrictions imposed by the Certificate of Incorporation, the Bylaws or the Stockholders' Agreement). Long Term Debt: as defined in Section 4.2.8. Losses: as defined in Section 7.1. Material Adverse Effect: means any adverse effect on the business, assets or financial condition of the Company or any of the Subsidiaries that is material in light of the business, assets or financial condition of the Company and the Subsidiaries taken as a whole. Notices: as defined in Section 9.6. Partnership Agreement: as defined in Section 4.1.5. Past Service: as defined in Section 5.3.4. Plans: means "employee benefit plan," as such term is defined in Section 3(3) of ERISA, including each "multiemployer plan," as such term is described 4001(a)(3) and Section 3(37) of ERISA, and any terminated employee benefit plan. Prime Rate: means a rate per annum equal to the lesser of (i) a varying rate per annum that is equal to the interest rate publicly quoted by Citibank, N.A. from time to time as its prime commercial or similar reference interest rate, with adjustments in that varying rate to be made on the same date as any change in that rate or (ii) the maximum rate permitted by applicable law. Proposed Effective Date Balance Sheet: as defined in Section 2.3. Purchase Price: as defined in Section 2.2. PURPA: as defined in Section 4.1.17. PURPA Regulations: as defined in Section 4.1.17. PURPA Requirements: as defined in Section 4.1.17. Self-Certification Notices: as defined in Section 4.2.7. Seller: as defined in the preamble. -5- Seller Indemnified Loss: as defined in Section 7.2. Seller's Interest: as defined in Section 2.3. Severance Plan: as defined in Section 5.3.4. Stockholders' Agreement: means that certain Stockholders' Agreement dated as of June 27, 1988, among Seller (as successor to Enron Corp.), Dominion Resources and Dominion. Subsidiaries: EC1, EC3, Clear Lake and Cogenron. Surety Agreement: means the Surety Agreement dated as of June 12, 1985, between Enron Corp. (as successor to InterNorth Inc.) and Texas Utilities Electric Company. Tax Returns: as defined in Section 4.1.14. Taxes: means all federal, state, local, Indian nation or foreign taxes, assessments or other governmental charges, together with any interest or penalties thereon. Texas City Facility: means the 450 megawatt gas-fired combined-cycle power plant located in Texas City, Texas and owned by Cogenron. Texas Facilities: means, collectively, the Clear Lake Facility and the Texas City Facility. Texas City O & M Agreement: the Operations and Maintenance Agreement (Cogenron Inc.) dated as of August 1, 1995, as amended, among EOC, the Company and Cogenron. Texas Plant Sites: means, collectively, the physical locations of the Texas Facilities. Third Party Claim: as defined in Section 7.4. UCC Guaranty Agreement: the Guaranty Agreement dated as of June 12, 1985, as amended, between Cogenron and Union Carbide Corporation. Unaudited Financial Statements: as defined in Section 4.1.9. Working Capital: as defined in Section 2.3. Year End Financials: as defined in Section 4.1.9. 1.2 Terminology. All article, section, subsection, schedule and exhibit references used in this Agreement are to this Agreement unless otherwise specified. All schedules and exhibits attached to this Agreement constitute a part of this Agreement and are incorporated herein. Unless the context of this Agreement clearly requires otherwise, (i) the singular shall include the plural and the plural shall include the singular wherever and as often as may be appropriate, (ii) the words -6- "includes" or "including" shall mean "including without limitation," and (iii) the words "hereof," "herein," "hereunder," and similar terms in this Agreement shall refer to this Agreement as a whole and not any particular section or article in which such words appear. Currency amounts referenced herein are in United States Dollars. References to "generally accepted accounting principles" herein shall refer to such principles in effect in the United States of America as of the date of the statement to which such phrase refers. ARTICLE II PURCHASE AND SALE 2.1 Purchase and Sale of Class A Common Stock. Upon the terms and subject to the conditions of this Agreement, at the Closing Seller will sell, assign, convey, transfer and deliver to Buyer free and clear of Liens, and Buyer will purchase and accept from Seller, the Class A Common Stock. 2.2 Purchase Price. (A) The purchase price (the "Purchase Price") to be paid by Buyer for the Class A Common Stock shall be an amount equal to Thirty-Five Million Four Hundred Twenty-Five Thousand Dollars ($35,425,000) (the "Base Purchase Price"), as adjusted pursuant to Section 2.3 and as Buyer and Seller may otherwise agree. (B) Upon the terms and subject to the conditions of this Agreement, at the Closing, (i) Seller will deliver to Buyer, and Buyer will accept, one or more stock certificates representing all of the Class A Common Stock, against payment therefor by Buyer to Seller of the Base Purchase Price, in immediately available funds by wire transfer to one or more bank accounts designated by Seller, and (ii) Buyer or Calpine Corporation will assume the rights and obligations of Seller and its Affiliates under the agreements set forth on Schedule 4.1.10(C) pursuant to the Omnibus Assignment and Assumption Consent, Novation and Amendment Agreements in the form of Exhibit A hereto (the "Assignment and Assumption Agreements"), and an agreement regarding the Stockholders' Agreement in form and substance satisfactory to Buyer and Seller, pursuant to which Enron Corp. or Seller will assign, and Calpine Corporation or Buyer will assume, all of Enron Corp.'s rights and obligations under the Stockholders' Agreement. In addition, but subject to Seller's rights under Section 8.1(v) and subject to obtaining consents to such assignments from Clear Lake and Cogenron, respectively, and from the respective holders of Long Term Debt secured by each of the Facilities, Seller shall cause EOC to assign its rights and interests as operator under the Clear Lake O & M Agreement and the Texas City O & M Agreement to Calpine Corporation or one of its Affiliates designated by Buyer pursuant to assignment and assumption agreements in form and substance satisfactory to Seller and Buyer. The agreements described in this Section 2.2(B) pursuant to which rights and obligations are to be assigned and assumed are collectively referred to as the "Assignment Agreements." 2.3 Determination of Purchase Price. (A) As promptly as practicable following the Closing Date, but in any event within 90 days after the Closing Date, Buyer shall submit to Seller a proposed balance sheet prepared by the Company as of the close of business on March 31, 1997 (the "Effective Date"), for the Company and the Subsidiaries, excluding all items relating to EC5 or Cogen Venture (including (i) all cash received by EC5 or from Cogen Venture in the three months -7- ending March 31, 1997, which is payable to Dominion pursuant to Section 2 of the Amendment to Reorganization Agreement dated as of June 30, 1991, and (ii) any associated account payable to Dominion or its Affiliates related to cash receipts by EC5 or from Cogen Venture which is then outstanding (the "Excluded Assets and Liabilities")) (the "Proposed Effective Date Balance Sheet"), prepared in accordance with generally accepted accounting principles applied on a consistent basis ("GAAP") and otherwise on a basis consistent with the December 31 Balance Sheet (defined in Section 4.1.9(B)), together with appropriate supporting calculations and documentation setting forth, in reasonable detail, the preparation of the balance sheet. If Seller disputes the correctness of the Proposed Effective Date Balance Sheet, Seller shall notify Buyer of its objections in writing within 30 days after receipt of the Proposed Effective Date Balance Sheet, which notice shall set forth in reasonable detail the reasons for Seller's objections. If Seller fails to deliver such notice within such 30-day period, Seller shall be deemed to have accepted the Proposed Effective Date Balance Sheet (including Buyer's calculations therein). Buyer and Seller shall endeavor in good faith to resolve any disputed items within 30 days after Buyer's receipt of Seller's notice of objections. If they are unable to do so, each party shall have the right to refer the dispute to Deloitte & Touche (the "Auditor") for resolution and determination of the Proposed Effective Date Balance Sheet to reflect what is required by this Section 2.3. Such determination by the Auditor shall be conclusive and binding on the parties. The fees of the Auditor incurred in resolving any such dispute shall be shared equally by Seller and Buyer, unless the Auditor determines that, as a whole, the positions taken by Buyer in the Proposed Effective Date Balance Sheet or by Seller in its objections to the Proposed Effective Date Balance Sheet were without merit, in which case the party making the unmeritorious assertion shall pay the Auditor's entire fee. The balance sheet as of the Effective Date as finally determined pursuant to this Section 2.3 (whether by failure of Seller to deliver notice of objection, by agreement of the parties or by determination by the Auditor) is referred to herein as the "Effective Date Balance Sheet". (B) The Purchase Price shall be calculated as follows. To the extent that Working Capital (defined below) on the Effective Date Balance Sheet exceeds Working Capital on the December 31 Balance Sheet (the December 31 Balance Sheet not being adjusted for the items described on Schedule 4.1.9(C)), or to the extent that the Company or the Subsidiaries have made unscheduled principal payments (i.e., payments other than those required to be made under the applicable amortization schedule) of Long Term Debt since December 31, 1996, the Purchase Price shall be increased above the Base Purchase Price to the extent of Seller's Interest (defined below) in the differences thereof. To the extent that Working Capital on the Effective Date Balance Sheet is less than Working Capital on the December 31 Balance Sheet (the December 31 Balance Sheet not being adjusted for the items described on Schedule 4.1.9(C)), the Purchase Price shall be reduced below the Base Purchase Price to the extent of Seller's Interest in the differences thereof. If the Purchase Price is greater than the Base Purchase Price, Buyer shall pay Seller the difference thereof. If the Purchase Price is less than the Base Purchase Price, Seller shall pay Buyer the difference thereof. All amounts owed for Purchase Price adjustments pursuant to this Section 2.3 shall be netted as appropriate so that only one payment shall be made, all such amounts shall bear interest at the Prime Rate from and including the Closing Date through and excluding the date of payment, and all adjustments shall be made without duplication. Any payment shall be made not later than two Business Days after final determination of the Effective Date Balance Sheet pursuant to this -8- Section 2.3 in immediately available funds by wire transfer to a bank account designated by the party entitled to receive the payment. (C) For purposes of this Agreement, (i) "Working Capital" means current assets (including without limitation cash and cash equivalents, accounts receivable, materials and supplies, and prepaid expenses) minus current liabilities (including without limitation accounts payable and other accrued current liabilities, but excluding current maturities of long term debt), excluding any items related to EC5 or Cogen Venture (including the Excluded Assets and Liabilities) and determined in accordance with GAAP; and (ii) "Seller's Interest" means, with respect to changes in Working Capital and unscheduled principal payments of Long Term Debt, 50%. ARTICLE III CLOSING DATE The consummation of the purchase and sale of the Class A Common Stock shall be held at a meeting (the "Closing") at the offices of Vinson & Elkins, L.L.P. at 10:00 A.M., Houston, Texas time, three Business Days after the date on which the last condition contained in Article VI is satisfied or waived, or at such other time, date and place as may be mutually agreed to in writing by the parties. The date on which the Closing actually occurs is referred to herein as the "Closing Date." ARTICLE IV REPRESENTATIONS AND WARRANTIES 4.1 Representations and Warranties of Seller. Seller hereby represents and warrants to Buyer as follows: 4.1.1 Organization and Good Standing. Seller is a corporation duly organized and validly existing under the laws of the State of Delaware and is in good standing under the laws of the States of Delaware and Texas. 4.1.2 Authority of Seller. Seller has all requisite corporate power and authority to enter into this Agreement, to consummate the transactions contemplated hereby and to perform all the terms and conditions hereof to be performed by it. The execution, delivery and performance of this Agreement by Seller and the transactions contemplated hereby to be consummated by Seller have been duly authorized by all requisite corporate action by Seller. This Agreement has been duly executed and delivered by Seller and constitutes a valid and binding agreement of Seller enforceable against Seller in accordance with its terms subject to applicable bankruptcy, insolvency and other similar laws relating to or affecting the enforcement of creditors' rights generally and to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law). 4.1.3 No Violations With Respect to Seller. Except as set forth in Schedule 4.1.3, the execution and delivery of this Agreement by Seller and the consummation of the transactions contemplated hereby to be consummated by Seller or its Affiliates do not: (i) violate or conflict with -9- any of the provisions of the certificate of incorporation or bylaws of Seller; (ii) conflict with, result in a breach of, or constitute a default under, or accelerate or permit the acceleration of the performance required by, or require any consent, authorization or approval under any material agreement or other instrument to which Seller is a party or by which Seller or its properties are bound; (iii) violate or conflict in any material respect with any Legal Requirements or any foreign law, rule, regulation, code, ordinance, material permit or material license; or (iv) constitute an event which, with notice, lapse of time or both would result in any such material violation, conflict, breach or default. 4.1.4 Approvals and Consents for Seller. No filing, consent, authorization or approval under any Legal Requirement binding upon Seller is required to be made or obtained by Seller in order to execute or deliver this Agreement or to consummate the transactions contemplated hereby by Seller, except with respect to the filings required under the HSR Act and except for any filings, consents, authorizations or approvals that, if not made or obtained, in the aggregate would not have a Material Adverse Effect. 4.1.5 Ownership. (A) Schedule 4.1.5 (A) sets forth all of the classes of capital stock of the Company, the number of authorized shares of such classes, the number of issued and outstanding shares of such classes and the par value thereof. (B) Seller owns beneficially and of record 7,095 shares of the Class A Common Stock. All of such shares of Class A Common Stock have been duly authorized, validly issued and are fully paid and non-assessable. Upon delivery of and payment for the Class A Common Stock as provided herein, at the Closing Buyer will acquire good title to the Class A Common Stock free and clear of all Liens other than Liens created by, through or under Buyer or its Affiliates. (C) Except as provided in this Agreement, the Bylaws and the Stockholders' Agreement, no subscription, option, warrant, conversion right, call or other agreement or commitment of any character is outstanding obligating Seller, the Company or (assuming that neither Buyer nor its Affiliates have entered into any such agreement or commitment) any subsequent owner of the Class A Common Stock to deliver or sell any Class A Common Stock or any securities, options, rights or warrants exchangeable for or convertible into the Class A Common Stock or any other class of capital stock of the Company. Except as provided in the Stockholders' Agreement, there are no voting agreements with respect to the Class A Common Stock or other agreements restricting the right of the owner of the Class A Common Stock to sell, transfer, grant a Lien on, or otherwise dispose of the Class A Common Stock, assuming that neither Buyer nor its Affiliates have entered into any such agreement. (D) Dominion owns of record 7,095 shares of Class B Common Stock of the Company (the "Class B Common Stock"). The Class A Common Stock and the Class B Common Stock together constitute all of the issued and outstanding capital stock of the Company. To Seller's knowledge, except for the Stockholders' Agreement, there are no voting agreements with respect to the Class B Common Stock. -10- (E) The Subsidiaries, EC5 and Cogen Venture constitute all of the corporations, partnerships, joint ventures and other entities in which the Company directly or indirectly owns an equity interest. The total number of shares of authorized capital stock, and the classes and par values thereof, and the number of issued and outstanding shares of each such class owned by the Company, of each Subsidiary that is a corporation are set forth on Schedule 4.1.5 (E). Other than as provided in this Agreement, no subscription, option, warrant, conversion right, call or other agreement or commitment of any character is outstanding obligating the Company, any of the Subsidiaries that is a corporation, or EC5 to deliver or sell any equity interest in any Subsidiary that is a corporation or in EC5 or any securities, options, rights or warrants exchangeable for or convertible into any such equity interest. Except as set forth on Schedule 4.1.5 (E), neither the Company, the Subsidiaries nor EC5 has any outstanding indebtedness for borrowed money or any other issued and outstanding securities. (F) The Company owns a 98% limited partner interest in Clear Lake and EC3 owns a 2% general partner interest in Clear Lake. Other than as provided in the Agreement of Limited Partnership dated January 29, 1988, between the Company and EC3 (the "Partnership Agreement"), there are no outstanding subscriptions, options, warrants or calls of any kind issued or granted by, or binding upon the Company, EC3 or Clear Lake to purchase or otherwise acquire (whether directly or through the purchase of any option or convertible security) any security of or equity interest in Clear Lake. 4.1.6 Company and Subsidiaries: (A) The Company and each of the Subsidiaries that is a corporation is duly organized, validly existing and in good standing under the laws of the State of Delaware and is in good standing in the States of Delaware and Texas. EC5 is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and is in good standing in the states of Delaware and New Jersey. Neither the Company, any of the Subsidiaries nor EC5 is qualified to do business as a foreign corporation in any other jurisdiction. Neither the character of the properties now owned or leased by the Company, the Subsidiaries or EC5 nor the nature of the business now conducted by any of them require them to be so qualified, except where the failure to be so qualified would not have a Material Adverse Effect. (B) Clear Lake is a limited partnership duly formed and validly existing under the laws of the State of Texas and is in good standing in the State of Texas. Clear Lake is not qualified to do business as a foreign limited partnership in any other jurisdiction. Neither the character of the properties now owned or leased by Clear Lake nor the nature of the business now conducted by it requires it to be so qualified, except where the failure to be so qualified would not have a Material Adverse Effect. 4.1.7 No Violation With Respect to Company and Subsidiaries. Seller has previously furnished Buyer with correct and complete copies of the Certificate of Incorporation of the Company (the "Certificate of Incorporation"), the Bylaws of the Company (the "Bylaws"), the Stockholders' Agreement, certificates of incorporation and bylaws of each Subsidiary that is a corporation, the certificate of incorporation of EC5, the Partnership Agreement, the certificate of limited partnership -11- of Clear Lake and the Amended and Restated Joint Venture Agreement of Cogen Venture. Except as set forth on Schedule 4.1.7 hereto, the execution and delivery hereof by Seller does not, and the performance and compliance with the terms and conditions hereof by it and the consummation of the transactions contemplated hereby by Seller or its Affiliates will not: (A) violate or conflict with any provision of the certificates of incorporation or bylaws of the Company, the Subsidiaries, EC5, the Stockholders' Agreement, or the Partnership Agreement; (B) violate or conflict with any provision of or, except with respect to the HSR Act, require any material filing, consent, authorization or approval under any Legal Requirements binding upon the Company, the Subsidiaries or EC5; (C) in any material respect, conflict with, result in a breach of, constitute a default under (whether with notice or the lapse of time or both), or accelerate or permit the acceleration of the performance required by, or require any consent, authorization or approval or trigger any preferential right of purchase under (i) any mortgage, indenture, loan or credit agreement or any other material agreement or instrument evidencing indebtedness for money borrowed, or any financing lease to which the Company, any Subsidiary or EC5 is a party or by which any of them is bound or to which any of their respective properties is subject or (ii) any other material lease, contract, agreement or instrument to which any of them is a party or by which any of them is bound or to which any of their respective properties is subject; or (D) except as set forth in agreements entered into after the date hereof that are approved by Buyer, result in the creation or imposition of any Lien upon any material asset of the Company, the Subsidiaries or EC5; in the case of clauses (B) through (D), except for any matters that in the aggregate would not have a Material Adverse Effect. 4.1.8 No Default; Legal Requirements. Except as set forth in Schedule 4.1.8 hereto: (A) Neither the Company, the Subsidiaries nor EC5 is in breach or violation of, or in default under, and no condition exists that with notice or lapse of time or both would constitute such a default under, (i) any mortgage, indenture, loan or credit agreement, evidence of indebtedness or other material instrument evidencing or securing borrowed money, or any financing lease to which any of them is a party or by which any of their respective properties is bound, (ii) any judgment, order or injunction of any court or governmental agency or (iii) any other agreement, contract, lease, license or other instrument; except for breaches, violations, defaults and conditions that individually or in the aggregate would not have a Material Adverse Effect; and, to Seller's knowledge, no such breaches, violations or defaults have been asserted in writing against the Company, the Subsidiaries or EC5; and (B) Neither the Company, the Subsidiaries nor EC5 is in violation of any Legal Requirement, except for violations that individually or in the aggregate would not have a Material Adverse Effect. -12- 4.1.9 Financial Statements. (A) Seller has delivered to Buyer the audited financial statements of the Company as of December 31, 1993, December 31, 1994, and December 31, 1995 (the "Year End Financials") certified by the Auditor. The Year End Financials were prepared in accordance with GAAP and present fairly in all material respects, the financial position, results of operations and changes in cash flows of the Company at the dates and for the periods therein indicated. (B) Seller has also delivered to Buyer the unaudited financial statements of the Company as of December 31, 1996, including a balance sheet as of December 31, 1996, a copy of which is attached hereto as Schedule 4.1.9(B)-1, (the "December 31 Balance Sheet") and income and cash flow statements as of such date (the unaudited financial statements collectively are referred to as the "Unaudited Financial Statements," and collectively with the Year End Financials, the "Financial Statements"). The Unaudited Financial Statements were prepared from the Company's and the Subsidiaries' books and records in accordance with GAAP and, with respect to the December 31 Balance Sheet, as adjusted by the numbers reflected on Schedule 4.1.9(C) hereby, present fairly in all material respects the financial position, results of operations and changes in cash flow of the Company and the Subsidiaries at the dates and for the period therein indicated, except to the extent such statements would be affected by year end and audit adjustments and except that such statements do not contain footnotes. Except as set forth on Schedule 4.1.9(B)-2 hereto, the contingent liabilities described in the footnotes to the audited financial statements of the Company as of December 31, 1996 will not materially and adversely differ from the contingent liabilities described in the Company's audited financial statements as of December 31, 1995. (C) Except as set forth on Schedule 4.1.9(C), the Company and the Subsidiaries have no liabilities exceeding $100,000 in the aggregate that would be required to be reflected on a balance sheet (not including the footnotes thereto) prepared in accordance with GAAP applied on a basis consistent with the Financial Statements, except for (i) liabilities reflected on the December 31 Balance Sheet, (ii) liabilities incurred since December 31, 1996 in the ordinary course of business and (iii) liabilities with respect to which separate agreements have been entered into between Seller or its Affiliates and Buyer or its Affiliates concurrently with the execution of this Agreement. (D) Since December 31, 1996, (i) the Company has neither declared, provided for nor made any dividends or distributions to its shareholders, and (ii) neither the Company nor the Subsidiaries has (a) made any material changes in its accounting methods, or (b) sold or otherwise disposed of any material portion of its assets, except for sales or dispositions in the ordinary course of business or pursuant to contracts listed on Schedule 4.1.10 (A). 4.1.10 Leases; Contracts; Agreements and Commitments. (A) Schedule 4.1.10(A) sets forth a list of the following written leases, contracts, agreements, and contractual commitments to which the Company, any Subsidiary or EC5 is a party or by which any of them or their respective assets are bound, correct and complete copies of which have previously been made available to Buyer: -13- (i) each lease, easement, right of way and license with respect to real property that is necessary to conduct, in all material respects, their respective businesses as they are currently being conducted and any other material agreement with respect to real property; (ii) each lease of personal property providing for rental payments in excess of $50,000 per year; (iii) each agreement involving $25,000 or more to contribute, lend or advance funds to, or to purchase any additional equity interest in any other person; (iv) each agency agreement involving more than $50,000 in any one year; (v) each mortgage, indenture, note, loan agreement, pledge agreement, security document, installment obligation, or other instrument, credit agreement, or reimbursement agreement for or relating to any borrowing (other than short-term borrowing in the ordinary course of business) in an amount in excess of $50,000; (vi) each collective bargaining agreement, employment agreement or consulting agreement; (vii) each guaranty, reimbursement agreement, bond, surety, or any other direct or indirect agreement to pay or perform any obligation of any person or entity given by the Company, any Subsidiary or EC5, excluding endorsements in the ordinary course of business; (viii) each agreement that expressly prohibits the Company, any Subsidiary or EC5 from competing with the counterparty in such a manner as to materially restrict the right of any of them to engage in any material business in which any of them is now engaged; (ix) each partnership, joint venture, shareholders or similar agreement; (x) each agreement for a duration of greater than 30 days for the purchase or sale of fuel, electric energy or capacity, or steam or the transportation of fuel, wheeling of power or interconnection agreements that would be in effect on the Closing Date; (xi) each agreement providing for the purchase or option to purchase all or substantially all of the assets of the Company, any Subsidiary or EC5; (xii) each material agreement between Seller, Dominion or their respective Affiliates, on the one hand, and the Company, any Subsidiary, or EC5, on the other hand, other than agreements that will be terminated on or before the Closing Date and for which the Company will have no liability thereafter; and (xiii) all other agreements of a duration of greater than 90 days that cannot be terminated without a penalty to the Company or any Subsidiary and that have a total consideration of more than $50,000 during the primary contract term that would be in effect on the Closing Date. -14- (B) Schedule 4.1.10(B) sets forth a list of each agreement to which Seller or any of its Affiliates is a party that directly relates to the Company and that, if the obligations thereunder are not performed, could have a Material Adverse Effect. (C) Schedule 4.1.10(C) sets forth a list of certain contracts, agreements, or contractual commitments to which Seller or its Affiliates are a party and the rights and obligations under which Buyer or Buyer's Affiliates will assume pursuant to the Assignment Agreements. Except as disclosed on Schedule 4.1.10(C), Seller and such Affiliates are not in default under any such agreement or commitment, except where such defaults in the aggregate would not have a Material Adverse Effect or, with respect to obligations of Seller or its Affiliates under such contracts, agreements or commitments to be assumed by Buyer or its Affiliates that provide equity support in respect of the Company or the Subsidiaries, that would not have a material adverse effect on the obligations of Buyer and its Affiliates as successors to Seller and its Affiliates under such contracts, agreements or commitments. Except for agreements to be assumed pursuant to the Assignment Agreements, Buyer will not assume any liabilities or obligations of Seller or its Affiliates. 4.1.11 Litigation. Schedule 4.1.11 sets forth a list of all lawsuits and administrative proceedings pending or, to the knowledge of Seller, threatened against the Company, any Subsidiary or EC5. Schedule 4.1.11 also sets forth a list of all lawsuits and administrative proceedings pending, or to the knowledge of Seller, threatened against Seller or its Affiliates that directly relate to the Company, any Subsidiary or EC5. To Seller's knowledge, there are no material investigations by any Governmental Entity pending or threatened against the Company, any Subsidiary or EC5. 4.1.12 Government Permits. Each of the Company and the Subsidiaries have all permits, licenses, consents and approvals from Governmental Entities required to be obtained by any of them that are necessary to conduct their business in accordance with Legal Requirements as it is currently being conducted, except where the failure to have same would not have a Material Adverse Effect. 4.1.13 Employee Benefits. Each of the Company, the Subsidiaries and EC5 (i) is not, and has never been treated as being a "single employer" under Section 414 of the Code with any other Person which has maintained or contributed to or had any liability (contingent or otherwise) to, under or based upon any Plan, (ii) does not have, and never has had, any "employees" as defined in Section 3(6) of ERISA, and (iii) does not, and has never maintained, contributed to or had any liability (contingent or otherwise) to, under or based upon any Plan, including Plans maintained by any member of a "controlled group" (as defined in Section 414 of the Code) or any plan that is a "multiemployer plan" (as defined in ERISA). 4.1.14 Tax Matters. Except as set forth in Schedule 4.1.14: (i)(a) All returns and reports ("Tax Returns") of or with respect to any and all Taxes which are required to be filed on or before the Closing Date (taking into account any extensions permitted under Section 5.3.2) by the Company and the Subsidiaries have been duly and timely filed (taking into account any extensions permitted under Section 5.3.2); -15- (b) All Taxes which have become due by the Company or the Subsidiaries (taking into account any extensions permitted under Section 5.3.2) with respect to the period covered by each such Tax Return have been timely paid in full (taking into account any extensions permitted under Section 5.3.2); and (ii) There is no pending written claim against the Company or the Subsidiaries for any Taxes that are due and payable, and no assessment, deficiency or adjustment has been asserted or, to Seller's knowledge, proposed with respect to any Tax Return of the Company or the Subsidiaries. There are no audits or investigations pending or, to Seller's knowledge, threatened against the Company or the Subsidiaries. 4.1.15 Real Property. Schedule 4.1.15 hereto sets forth legal descriptions of the Facilities as they appear in the leases with respect thereto. Neither the Company nor any Subsidiary owns fee simple title to any real property. To Seller's knowledge, such legal descriptions accurately describe, in all material respects, the real property on which the Clear Lake Facility and the Texas City Facility are located. 4.1.16 Environmental Matters. Except as set forth on Schedule 4.1.16 hereto and except where any of the following would not have a Material Adverse Effect, (i) neither the Company nor the Subsidiaries are in violation of any Environmental Legal Requirement as a result of the operation of the business by the Company or the Subsidiaries, (ii) no Hazardous Substances are present on, at or under the Texas Plant Sites as a result of the operation of the business by the Company or the Subsidiaries in quantities, concentrations, or locations that require remedial action by any of them under Environmental Legal Requirements, and, to Seller's knowledge, no such Hazardous Substances are present on, at or under the Texas Plant Sites as a result of any other source or cause that would require such remedial action, (iii) neither Seller nor the Company has received any written notice, demand letter, or request for information from any Governmental Entity or any third party indicating that Seller, the Company or the Subsidiaries may be in violation of, or liable under, Environmental Legal Requirements, which matter has not been finally resolved or settled, (iv) no Hazardous Substance has been disposed of or transported from the business while owned or operated by the Company or the Subsidiaries except as permitted under applicable Environmental Legal Requirements or has been released on or from the business by the Company or the Subsidiaries or the Texas Plant Sites while owned or operated by the Company or the Subsidiaries which requires remediation under applicable Environmental Legal Requirements, and (v) there has been no exposure of any person or property to Hazardous Substances in connection with the business by the Company or the Subsidiaries, which exposure has (i) resulted in a material claim against the Company or the Subsidiaries or (ii) to Seller's knowledge, would be the basis for such a claim. This Section 4.1.16 is intended to, and shall be, the sole representation and warranty in this Agreement with respect to environmental matters and no other representation and warranty in this Agreement shall be construed as covering any environmental matters. 4.1.17 Regulatory Matters. (A) Neither Seller, the Company, nor any of the Subsidiaries is an "investment company" within the meaning of the Investment Company Act of 1940, as amended. -16- (B) Each of the Seller, the Company and the Subsidiaries is not subject to, or is exempt from regulation as, an "electric utility company", a "holding company," a "subsidiary company" of a "holding company," an "affiliate" of a "holding company," or an "affiliate" of a "subsidiary company" of a "holding company," in each case as such terms are defined in the Public Utility Holding Company Act of 1935, as amended. (C) Each of the Facilities is a "qualifying cogeneration facility," as such term is defined in the Federal Power Act, as amended by the Public Utility Regulatory Policies Act of 1978 ("PURPA"), the regulations of FERC thereunder ("PURPA Regulations"), and the current interpretations of FERC and courts of competent jurisdiction of PURPA and such regulations (collectively, PURPA, the regulations and all such interpretations, the "PURPA Requirements"). 4.1.18 Sole Purpose; Nature of Business. Neither the Company nor any Subsidiary has conducted or is conducting any business other than business relating to the development, financing, acquisition, construction, ownership, operation and maintenance of the Facilities and the sale of energy produced from the Facilities. 4.1.19 Brokerage or Finders Fees. All negotiations relating to this Agreement and the transactions contemplated hereby have been conducted without the intervention of any person or entity acting on behalf of Seller, its Affiliates or the Company in such a manner as to give rise to a valid claim against Buyer, the Company or any Subsidiary for any broker's or finder's commission, fee or similar compensation. 4.1.20 Insurance. Set forth on Schedule 4.1.20 is a correct and complete list of all operating insurance applicable to the Facilities and maintained on behalf of the Company and the Subsidiaries (the "Insurance"), listing the types of coverages, amounts of coverage and deductibles. Such insurance is in full force and effect and complies in all materials respects with all material requirements of all material agreements binding on the Company, either Subsidiary or EOC, as operator under the Clear Lake O&M Agreement and the Texas City O&M Agreement. 4.1.21 Material Assets and Properties. Except for assets and properties listed on Schedule 4.1.21 hereto, and except for assets and properties provided pursuant to the Administrative Services Agreement, each of the Subsidiaries owns or otherwise has the right to use the assets and properties reasonably necessary to conduct their respective businesses as they are now conducted; except where the failure to have same would not have a Material Adverse Effect. 4.2 Representations and Warranties of Buyer. Buyer hereby represents and warrants to Seller as follows: 4.2.1 Organization and Good Standing. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. 4.2.2 Authority of Buyer. Buyer has all requisite corporate power and authority to enter into this Agreement, to consummate the transactions contemplated hereby and to perform all the terms and conditions hereof to be performed by it. The execution, delivery and performance of this -17- Agreement by Buyer and the transactions contemplated hereby to be consummated by Buyer have been duly authorized by all requisite corporate action by Buyer. This Agreement has been duly executed and delivered by Buyer and constitutes a valid and binding agreement of Buyer enforceable against Buyer in accordance with its terms subject to applicable bankruptcy, insolvency and other similar laws relating to or affecting the enforcement of creditors' rights generally and to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law). 4.2.3 No Violations. The execution and delivery of this Agreement by Buyer and the consummation of the transactions contemplated hereby to be consummated by Buyer do not and will not: (i) violate or conflict with any of the provisions of the certificate of incorporation or bylaws of Buyer; (ii) in any material respect conflict with, result in a breach of, or constitute a default under, or accelerate or permit the acceleration of the performance required by, or require any consent, authorization or approval under any material agreement or other instrument to which Buyer is a party or by which Buyer or its properties are bound; (iii) violate or conflict in any material respect with any Legal Requirements or any foreign law, rule, regulation, code, ordinance, material permit or material license; or (iv) constitute an event which, with notice, lapse of time or both would result in any such material violation, conflict, breach or default. 4.2.4 Approvals and Consents. No material filing, consent, authorization or approval under any Legal Requirement binding upon Buyer is required to be made or obtained by Buyer in order to execute or deliver this Agreement or to consummate the transactions contemplated by hereby by Buyer, except with respect to the filings required under the HSR Act. 4.2.5 Acquisition as Investment. Buyer is acquiring the Class A Common Stock for its own account as an investment without the present intent to sell, transfer or otherwise distribute the Class A Common Stock to any other person or entity. 4.2.6 Brokerage or Finders Fees. All negotiations relating to this Agreement and the transactions contemplated hereby have been conducted without the intervention of any person or entity acting on behalf of Buyer or its Affiliates in such a manner as to give rise to a valid claim against Seller, the Company or any Subsidiary for any broker's or finder's commission, fee or similar compensation. 4.2.7 No Electric Utility Ownership. Assuming Seller's representation in Section 4.1.17(C) is accurate, Buyer is not (i) an "electric utility" or an "electric utility holding company" or a wholly or partially owned subsidiary of either, within the meaning of Part 292 of the PURPA Regulations (18 C.F.R. Part 292) and FERC's decisions thereunder or (ii) otherwise engaged in the generation or sale of electric power (other than electric power solely from "cogeneration facilities" or "small power production facilities" (both within the meaning of Part 292 of the PURPA Regulations or the current interpretations of FERC and the courts of competent jurisdiction of such regulation)). At or before the Closing, Buyer will have ratified all written agreements between Clear Lake or Cogenron, on the one hand, and Buyer, Seller, DRI or their respective Affiliates, on the other. Within 30 days after the Closing Date, Buyer will have caused each of Clear Lake and Cogenron to file a notice of self-certification ("collectively, the "Self-Certification Notices"), the purpose of which is to reflect -18- the change in ownership of the Company, which notices shall describe the non-utility status of Calpine. 4.2.8 Available Funds. Buyer has, and at the Closing will have, sufficient funds available to it to purchase the Class A Common Stock pursuant to this Agreement and to purchase the existing long-term project debt on the Facilities (the "Long Term Debt") pursuant to the Assignment of Notes for a cash purchase price equal to the outstanding principal balance, plus accrued interest, as of the Closing Date, which principal and interest, as of the date hereof, is expected to total approximately $157,000,000. 4.2.9 Knowledgeable Buyer. Buyer (i) is represented by competent legal, tax and financial counsel in connection with the negotiation, execution, and delivery of this Agreement, (ii) together with its Affiliates, has sufficient knowledge and experience in owning, managing, and operating power generating facilities to enable it to evaluate the Facilities, the Company, each Subsidiary, EC5 and Cogen Venture, and the businesses of each of them, and the technical, commercial, financial, legal, regulatory, and other risks associated with owning the Class A Common Stock, (iii) acknowledges that pursuant to this Agreement it will have, prior to the Closing Date, performed all due diligence that it desires to perform to enable it to evaluate the risks and merits of consummating the transactions contemplated hereby, and that in making the decision to enter into this Agreement and the Assignment of Notes and to consummate the transactions contemplated hereby and thereby, it has relied solely on the basis of its own independent investigation, analysis and evaluation of the Company and the Subsidiaries and their properties, assets, business, financial condition and prospects and upon the express representations, warranties and covenants in this Agreement and in any certificate delivered at the Closing, and (iv) together with its Affiliates, is financially capable of owning the Class A Common Stock and the Long Term Debt and performing its obligations under this Agreement, the Assignment of Notes and the Assignment Agreements. Nothing discovered (or which should have been discovered) by Buyer in the course of due diligence will be considered a waiver of or will reduce Seller's rights under Article VII; provided that, prior to the Closing, Buyer has disclosed to Seller any inaccuracy in Seller's representations and warranties or any errors in or omissions from the schedules to this Agreement of which Buyer has knowledge, and further provided that the foregoing does not extend the time period in which a claim may be made under Article VII or affect Seller's rights under Section 7.6. Buyer acknowledges that neither Seller, its Affiliates nor any other person or entity has made any representation or warranty, express or implied, as to the Company or the Subsidiaries except for those expressly set forth in Section 4.1 or in any certificate by Seller or its Affiliates delivered at the Closing. ARTICLE V ADDITIONAL AGREEMENTS AND COVENANTS 5.1 Covenants of Seller. Seller covenants and agrees with Buyer as follows: 5.1.1 Certain Changes. Except as may be permitted hereunder or as otherwise contemplated in this Agreement and except as set forth on Schedule 5.1.1, from the date hereof through the Closing Date, without first obtaining the written consent of Buyer, which consent shall -19- not be unreasonably withheld, Seller shall, to the extent within its reasonable control, cause the Company and the Subsidiaries not to: (i) make any material change in the conduct of its business or operations or make any change in its financial or tax accounting principles or practices; (ii) merge into or with or consolidate with any other entity or acquire all or substantially all of the business or assets of any corporation, person or entity; (iii) make any change in their respective organizational documents; (iv) purchase any securities of any corporation, person or entity except for investments of cash and other funds in the ordinary course of business or issue any debt or equity securities; (v) mortgage, pledge or subject to any new Lien any of their respective material assets, tangible or intangible, except pursuant to any agreement disclosed on Schedule 4.1.10; or sell, transfer or dispose of all or any material portion of their assets, except for sales, transfers or dispositions in the ordinary course of business or other dispositions of equipment or inventory items that are obsolete or not of material value; (vi) take any action or enter into any commitment with respect to or in contemplation of any liquidation, dissolution, recapitalization, reorganization or other winding up of its business or operation; (vii) enter into any settlement of or commence any material pending or threatened litigation; (viii) consent to the entry of any decree or order by a Governmental Entity; (ix) set aside, declare or pay any dividends; (x) incur or guarantee any indebtedness for borrowed money in excess of $50,000 or forgive any indebtedness for borrowed money or make any advances or loans to third parties; (xi) form any new subsidiaries or engage in any new businesses; (xii) enter into any new material agreement or amend or terminate any material agreement; or (xiii) provide any new (meaning not pursuant to an existing agreement disclosed on Schedule 4.1.10(A)) severance or other employee benefits to any employee of or consultant to the Company or any Subsidiary, except for extensions of existing consulting agreements on substantially the same terms. -20- From the date hereof through the Closing Date, except as permitted hereunder or contemplated hereby or as consented to in writing by Buyer, Seller will not enter into any guarantees or other support agreements in respect of the Company or the Subsidiaries. With respect to those matters set forth on Schedule 5.1.1, Seller shall consult, and shall use its Best Efforts to cause the Company and the Subsidiaries to consult, with Buyer with respect to any negotiations with third parties and any new agreements or amendments or modifications to agreements contemplated by the matters listed on Schedule 5.1.1, and shall use its good faith efforts to incorporate any revisions to agreements requested by Buyer in such negotiations, agreements, amendments and modifications. 5.1.2 Operation of Business. From the date hereof until the Closing Date, except as permitted hereunder or contemplated hereby or as consented to in writing by Buyer, Seller shall use its Best Efforts to cause the Company and the Subsidiaries to carry on their respective businesses in the usual and ordinary course except where the failure to do so would not have a Material Adverse Effect, including the purchase of spare parts for the Facilities and the performance of maintenance, repairs and similar activities in accordance with the normal current schedule therefor, and the payment of amounts due under the Long Term Debt as and when due under the applicable amortization schedule. Seller shall not cause EOC or ECT to change the performance of their obligations under the Clear Lake O & M Agreement, the Texas City O & M Agreement or the Administrative Services Agreement. 5.1.3 Insurance. From the date hereof until the Closing Date, Seller will use its Best Efforts to cause the Company to maintain the Insurance for itself and the Subsidiaries. Buyer recognizes and acknowledges that the Insurance will terminate upon the Closing and that the Company and the Subsidiaries will need to obtain new insurance. All insured claims or losses arising or occurring on or before the Closing with respect to the Company or the Subsidiaries shall be for the account of the Company or the Subsidiaries under the insurance policies maintained pursuant to the applicable operating and maintenance agreements or credit facilities relating to the Long Term Debt, regardless of when such claims or losses are reported to the applicable insurance carrier; provided that with respect to Insurance constituting liability insurance,. all such claims and losses shall be reported no later than the first anniversary of the Closing Date. 5.1.4 Access. Seller will afford to Buyer and its authorized representatives, at Buyer's sole expense, risk and cost, reasonable access from the date hereof through the Closing Date, during normal business hours, to its and the Company's personnel, properties, books and records relating to the Facilities, the Company, the Subsidiaries and EC5 and will furnish to Buyer such additional financial and operating data and other information relating to any of them as Buyer may reasonably request, to the extent that such access and disclosure would not violate the terms of any agreement to which Seller, the Company, any Subsidiary or EC5 is bound or any Legal Requirement; provided, however, that the confidentiality of any data or information so acquired shall be maintained by Buyer and its Affiliates and their representatives in accordance with Section 5.2.3; and further provided that all requests for access shall be directed to Brad Petzold (713) 853-1611, or such other persons as Seller may designate from time to time. During said period, Seller will also allow Buyer such access to the documents within its possession or to which it has reasonable access relating directly to Cogen JV. -21- 5.1.5 Antitrust Notification and Other Governmental Filings. Seller or its Affiliate will, as promptly as practicable (and, in any event, within 10 days after the execution hereof) file with the Federal Trade Commission and the Department of Justice the notification and report form required to be filed by it for the transactions contemplated hereby (and shall request early termination of the waiting period) and any supplemental information which may be reasonably requested in connection therewith pursuant to the HSR Act. 5.1.6 Confidentiality. After the Closing Date, Seller shall not, directly or indirectly, use, disclose or provide to any other person or entity any information of a confidential or proprietary nature concerning the business or assets of the Company, the Subsidiaries or EC5 except (i) as is required in governmental filings or judicial, administrative or arbitration proceedings or by Legal Requirements, (ii) information that was or becomes in the public domain without breach of any obligation of confidentiality by Seller or its Affiliates, or (iii) as is reasonably necessary to enforce its rights or defend its obligations in connection with the Facilities. 5.1.7 Public Announcements. Subject to applicable securities law or stock exchange requirements, at all times until the Closing Date, Seller shall promptly advise, and obtain the approval (which may not be withheld unreasonably) of, Buyer before issuing, or permitting any of its directors, officers, employees, agents or investment bankers, or any of its Affiliates to issue, any press release or other announcement with respect to this Agreement or the transactions contemplated hereby; provided that no further approval shall be required for press releases or other announcements which are substantially similar to previously approved releases or announcements provided a copy of such release or announcement is furnished promptly to Buyer. 5.1.8 Transaction Costs. Seller shall bear and pay all of the costs, fees and expenses incurred by it or on its behalf in connection with the transactions contemplated by this Agreement. 5.1.9 Noncompetition. For a period of one year after the Closing Date, neither Seller nor any of its Affiliates shall sell or enter into any contract to sell and, upon request by Buyer, shall immediately cease any activities or attempts to sell or enter into any contract to sell, steam to Union Carbide Corporation for use at its facility adjacent to the Texas City Facility or to Hoechst Celanese Corporation for use at its facility adjacent to the Clear Lake Facility. 5.1.10 Satisfaction of Closing Conditions. Seller shall use its Best Efforts to cause satisfaction of the conditions precedent to Closing set forth in Sections 6.1.3, 6.1.7 through 6.1.10, and, subject to Section 8.1(v), Sections 6.1.6 and 6.2.7 through 6.2.9. -22- 5.2 Covenants of Buyer. Buyer covenants and agrees with Seller as follows: 5.2.1 Antitrust Notification and Other Governmental Filings. Buyer or its Affiliate will as promptly as practicable (and, in any event, within 10 days after the execution hereof) file with the Federal Trade Commission and the Department of Justice the notification and report form required for the transactions contemplated hereby (and shall request early termination of the waiting period) and any supplemental information which may be reasonably requested in connection therewith pursuant to the HSR Act. 5.2.2 Public Announcements. Subject to applicable securities law or stock exchange requirements, at all times until the Closing Date, Buyer shall promptly advise, and obtain the approval (which may not be withheld unreasonably) of, Seller before issuing, or permitting any of Buyer's directors, officers, employees, agents or investment bankers, or any of Buyer's Affiliates to issue, any press release or other announcement with respect to this Agreement or the transactions contemplated hereby; provided that no further approval shall be required for press releases or other announcements which are substantially similar to previously approved releases or announcements provided a copy of such release or announcement is furnished promptly to Seller. 5.2.3 Confidential Information. In the event that this Agreement is terminated or, if not terminated, until the Closing Date, the confidentiality of any data or information received by Buyer regarding the business and assets of the Company, Seller and their respective Affiliates shall be maintained by Buyer and its representatives in accordance with the Confidentiality Agreement dated March 10, 1997 executed by Calpine Corporation and Seller (the "Confidentiality Agreement"). 5.2.4 Transaction Costs. Buyer shall bear and pay all of the costs, fees and expenses incurred by it or on its behalf in connection with the transactions contemplated by this Agreement, including the filing fees under the HSR Act. 5.2.5 Satisfaction of Closing Conditions. Buyer shall use its Best Efforts to cause satisfaction of the conditions precedent to Closing set forth in Sections 6.2.3, 6.2.4, and 6.2.7 through 6.2.9. 5.2.6 Bank Account and Line of Credit. Buyer has heretofore delivered to Seller a letter from Bank of Nova Scotia (the "Bank") stating that Buyer (i) has deposited sufficient funds in a deposit account maintained by it at the Bank and (ii) has sufficient funds available to be drawn under the line of credit provided by the Bank, to complete the purchase of the Class A Common Stock and Long Term Debt as contemplated hereby. Buyer hereby agrees that prior to the termination of this Agreement as permitted hereunder, it shall not (a) withdraw or use funds from such account or (b) draw down on or use funds from such line of credit except to purchase the Class A Common Stock and the Long Term Debt, which withdrawal or use in the aggregate would reduce the total amount available in such account and under such line of credit to less than the sum of the Base Purchase Price and the amount of the principal and interest outstanding under the Long Term Debt. From the date hereof through the Closing, Buyer shall not, and shall cause its Affiliates not to, take any action that would cause the terms and conditions to utilizing funds under such line of credit not to be -23- satisfied. Nothing in this Section 5.2.6 is intended to, nor shall it, modify Section 4.2.8 or imply that Buyer's obligations under this Agreement are subject to financing. 5.2.7 Certain FERC Matters. At or before the Closing, Buyer shall ratify all written agreements between Clear Lake and Cogenron, on the one hand, and Buyer, Seller, DRI or their respective Affiliates, on the other, and shall furnish Seller with a valid resolution of Buyer evidencing such ratification. Within 30 days after the Closing Date, Buyer shall cause Clear Lake and Cogenron to file the Self-Certification Notices with FERC. 5.3 Mutual Covenants. Buyer and Seller covenant and agree as follows: 5.3.1 Release. Prior to the Closing, without limiting Seller's rights under Sections 6.2.7 through 6.2.9, and 8.1(v), Buyer and Seller shall use their Best Efforts to have Seller and their Affiliates released from all obligations under the agreements listed on Schedule 4.1.10(C) (including the agreements listed as Credit Support Obligations therein (the "Credit Support Obligations")). In addition, Buyer shall provide financial information and offer to furnish substantially equivalent credit support obligations to the obligees under the Credit Support Obligations to effect such release pursuant to agreements that are mutually satisfactory to Buyer and Seller. To the extent that Seller and its Affiliates are not released from all of the Credit Support Obligations pursuant to agreements reasonably satisfactory to Seller in form and substance, Buyer shall indemnify Seller and its Affiliates pursuant to Section 7.2(B) with respect thereto. 5.3.2 Tax Returns. Seller, in cooperation with the Company, shall cause to be prepared and timely filed (taking into account any extensions permitted hereunder) each income Tax Return of the Company that includes a taxable period ending on or before the Closing Date which is required to be filed after the Closing Date, and pursuant to Section 9.4(B), Buyer shall provide records and assistance to enable Seller to make such filings. Seller shall not cause or permit the Company to extend the filing date for such Tax Returns without Buyer's prior written consent. 5.3.3 Administrative Services Agreement. Seller shall cause ECT to agree (i) to offer to the Company to amend the Administrative Services Agreement to provide that it will terminate on a date designated by the Company which is not more than 90 days after the Closing Date, (ii) to continue to perform ECT's duties and obligations under the Administrative Services Agreement through and including such designated termination date and (ii) upon such termination date, to deliver and turn over to the Company non-proprietary software, electronic data and books and records relating primarily to the Company or the Subsidiaries and any other items as are mutually agreed upon by ECT and the Company. 5.3.4 Employment Matters. (A) Facilities Employees. Schedule 5.3.4(A) (the "Employee Schedule") to be attached to this Agreement will contain the names of employees of Enron International Payroll, Inc. ("EIPI") who are engaged in the operation and maintenance of the Facilities (the "Facilities Employees"), their current salaries and work location. Seller shall deliver the Employee Schedule of Facilities Employees on a confidential basis to the Manager, Human Resources of Buyer, no more than five -24- business days after this Agreement is executed. The Employee Schedule shall set forth substantially the same number of employees, types and numbers of jobs at each Facility and at the Company, current salary amounts and years of past service credit as the information previously provided to Buyer by Seller or its Affiliates. The Employee Schedule shall show the name, job position, work location, current salary and years of past service credit for each of the Facilities Employees. In addition, Seller will provide Buyer on a confidential basis relevant written information in Seller's possession regarding each individual's work qualifications, training history, and prior jobs held while employed by any affiliate of Seller. The average severance cost for these Facilities Employees is $25,272 (the "Average Severance Cost"). Buyer, in its sole discretion, may make offers of employment to any of the Facilities Employees. Buyer understands that offers of employment which are not at least at the current salary and at the same location of any Facilities Employee may be declined by such employee and such employee, if terminated by EIPI, would be entitled to a severance benefit under the Enron Corp. Severance Pay Plan (the "Severance Plan"), a copy of which Seller has provided to Buyer. With respect to Facilities Employees who become entitled to a severance benefit under the Severance Plan as a result of Buyer's not having made offers of employment to such employees at their current salaries and at the same location, Seller shall be financially responsible for the first nine Facilities Employees who are paid a severance benefit under the Severance Plan, and Buyer shall promptly, without delay, upon receipt of written notification by Seller, pay to Seller an amount equal to the number of such Facilities Employees in excess of nine, who within 90 days after the Closing, are paid a severance benefit under the Severance Plan multiplied by the Average Severance Cost. If any such Facilities Employee is terminated by Seller and receives severance under the Severance Plan, and within 12 months after the termination of the Facilities Employee by Seller, Buyer employs such Facilities Employee, then Buyer shall promptly pay to Seller an amount equal to all or a portion of the severance benefit, if any, paid to such Facilities Employee by either Seller or EIPI in connection with such employee's termination of employment with either Seller or EIPI, determined by multiplying the amount of such severance benefit by a fraction, the numerator of which is the number 12 reduced by the number of full months that have passed from the Closing Date to the employment date, and the denominator of which is the number 12. (B) COBRA Continuation Coverage. Seller shall be responsible for the health care claims of any Facilities Employees that are not employed by Buyer as of the Closing Date who receive continuation of health care coverage, as required by the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") under medical plans by which they are covered. Buyer shall be responsible for providing health care continuation coverage, if any, as required by COBRA to any of the Facilities Employees who are employed by Buyer as of or subsequent to the Closing Date and who cease employment with Buyer for any reason thereafter. (C) Participation In Buyer's Plans. Subsequent to the Closing, upon employment with Buyer, the Facilities Employees employed by Buyer shall be eligible for participation in all employee benefit plans (within the meaning of Section 3(3) of ERISA) for which similarly situated employees of Buyer are eligible ("Buyer's Plans"). Under Buyer's Plans, the Facilities Employees employed by Buyer will be given credit for Past Service (defined below) for purposes of determining (i) eligibility for participation in the retirement, short or long term disability, severance and vacation plans (including, without limitation, eligibility for early retirement), and (ii) the duration and amount, if any, of short or long term disability and severance benefits. "Past Service" means (i) service as -25- an employee of EIPI or any of its affiliates and (ii) service as an employee of any other entity, but only to the extent that such service is recognized under the applicable and similar plan of EIPI or its Affiliates, and is continuous through the Closing Date. (D) No Medical Preexisting Condition. No preexisting condition limitations shall be applicable to Facilities Employees employed by Buyer under any employee benefit plan of Buyer provided that, with respect to each Facilities Employee and his or her other covered dependents, such Facilities Employee and each covered dependent enrolls in such plan within 30 days of the Facilities Employee commencing employment with Buyer; and further provided that such person has been covered under a medical plan for the six-month period preceding the Closing. Additionally, any Facilities Employee or covered dependent expenses applied toward deductibles in the year in which the Closing occurs and any out-of-pocket limitations under EIPI's medical and dental plans in the year in which the Closing occurs shall be recognized under Buyer's medical and dental plans and applied respectively toward any deductibles or out-of-pocket limits thereunder in such year. (E) Responsibility for Claims. Employee benefit claims for expenses incurred by, or for services provided to, Facilities Employees or their dependents which occur prior to the date of the Closing shall be the financial obligation of Seller. Employee benefit claims for expenses incurred by, or for services provided to, Facilities Employees employed by Buyer or their covered dependents which occur on or after the Closing Date shall be covered under Buyer's Plans. The amount and type of benefits payable in any case shall be determined in accordance with the terms of the applicable employee benefit plan. (F) Severance Benefits. Buyer shall cause the Facilities Employees employed by Buyer to be eligible for severance benefits, to be paid to such a Facilities Employee if within one year after the Closing the Facilities Employee either has a reduction in base pay and elects within 30 days thereof to terminate employment or is terminated by Buyer for a reason other than termination for cause, in the sum of (i) two weeks of base pay for each year of Past Service and additional service, or portion thereof, credited with Buyer, and (ii) two weeks of base pay for each Ten Thousand Dollars, or portion thereof, of annualized base pay, up to a maximum total severance payment equal to 52 weeks of base pay. "Termination for cause" as used in this paragraph shall mean termination for such reasons as Buyer may reasonably determine constitutes cause which is serious enough to result in a legitimate business need for termination of employment instead of warning, probation or counseling. Failure to meet established performance expectations shall not be such a cause for termination unless the Facilities Employee has been counseled about the unacceptable performance and has had an opportunity to improve performance for at least 30 days. ARTICLE VI CONDITIONS TO CLOSING 6.1 Buyer's Obligation to Close. Buyer's obligation to close under this Agreement is subject to the fulfillment, on the Closing Date, of each of the following conditions (except to the extent that Buyer shall have hereafter agreed in writing to waive one or more of such conditions): -26- 6.1.1 Compliance with Agreement. Seller shall have performed and complied in all material respects with all covenants required by this Agreement to be performed or complied with by it on or prior to the Closing. 6.1.2 Representations and Warranties. The representations and warranties of Seller contained in this Agreement shall be true and correct in all material respects at and as of the Closing. 6.1.3 Certificate. Seller shall have delivered to Buyer (i) a certificate, dated the Closing Date, executed on its behalf by its president or a vice president, certifying true and correct copies of each contract, agreement, commitment, instrument or other document described on Schedules 4.1.10(A), 4.1.10(B), and 4.1.10(C), and (ii) a certificate, dated the Closing Date, executed on its behalf by its president or a vice president, to the effect that the conditions in Sections 6.1.1 and 6.1.2 are satisfied, except for any exceptions noted in such certificate. If any of Buyer's conditions to Closing have not been satisfied, but Buyer nonetheless waives the satisfaction of such condition, Buyer shall not be entitled to any decrease in the Purchase Price or any recourse, including indemnification under Section 7.1, against Seller or its Affiliates with respect to the matter so waived. 6.1.4 Filings. Any applicable waiting period under the HSR Act shall have expired. 6.1.5 Litigation. (i) There shall not be pending any litigation or proceeding (filed by a person or entity other than Buyer or its Affiliates) to restrain or prohibit the transactions contemplated by this Agreement or to obtain material damages or other material relief in connection with the consummation of such transactions. 6.1.6 Stock Certificates; Assignment Agreements. Seller shall have delivered to Buyer (i) one or more stock certificates evidencing the Class A Common Stock, with stock powers duly executed in blank, and (ii) the Assignment Agreements, duly executed by Seller and its Affiliates (to the extent they are parties thereto) and all necessary consents thereto shall have been obtained. 6.1.7 Opinion. Seller shall have delivered to Buyer one or more opinions of internal counsel of Seller or its Affiliates (i) covering due authorization, execution and delivery by Seller and its Affiliates, as applicable, of this Agreement, any separate agreements executed contemporaneously herewith between Seller or its Affiliates and Buyer or its Affiliates (including the Guaranty by Enron Corp. of Seller's obligations hereunder in favor of Buyer) and the Assignment Agreements and (ii) to the effect that this Agreement and such other agreements are valid and binding on Seller or its Affiliates, as applicable (but expressing no opinion as to enforceability). 6.1.8 Secretary's Certificate. Seller shall have delivered to Buyer a certificate dated the Closing Date executed by the secretary or an assistant secretary of Seller, certifying that the resolutions of Seller authorizing entering into this Agreement and in full force and effect. 6.1.9 Resignations. Seller shall have delivered to Buyer the duly executed resignations of all Class A directors and the officers listed on Schedule 6.1.9. -27- 6.1.10 Scheduled Payments. All scheduled payments on Long Term Debt due on or before the Effective Date pursuant to the applicable amortization schedule therefor shall have been paid. 6.2 Seller's Obligation to Close. The obligation of Seller to close under this Agreement is subject to the fulfillment, on the Closing Date, of each of the following conditions (except to the extent that Seller shall have hereafter agreed in writing to waive one or more of such conditions): 6.2.1 Compliance with Agreement. Buyer shall have performed and complied in all material respects with all covenants to be performed or complied with by Buyer on or prior to the Closing. 6.2.2 Representations and Warranties. The representations and warranties of Buyer contained in this Agreement shall be true and correct in all material respects at and as of the Closing 6.2.3 Certificate. Buyer shall have delivered to Seller a certificate, dated the Closing Date, executed on its behalf by its president or a vice president, to the effect that the conditions in Sections 6.2.1 and 6.2.2 have been satisfied, except for any exceptions noted in such certificate. If any of Seller's conditions to Closing have not been satisfied, but Seller nonetheless waives the satisfaction of such condition, Seller shall not be entitled to any increase in the Purchase Price or any recourse, including indemnification under Section 7.2, against Buyer with respect to the matters so waived. 6.2.4 Opinion. Buyer shall have delivered to Seller an opinion of internal counsel (i) covering due authorization, execution and delivery by Buyer and its Affiliates, as applicable, of this Agreement, any separate agreements executed contemporaneously herewith between Seller or its Affiliates and Buyer or its Affiliates (including the Guaranty by Calpine Corporation of Buyer's obligations hereunder in favor of Seller), and the Assignment Agreements and (ii) to the effect that this Agreement and such other agreements are valid and binding on Buyer or its Affiliates, as applicable (but expressing no opinion as to enforceability). 6.2.5 Filings. Any applicable waiting period under the HSR Act shall have expired. 6.2.6 Litigation. There shall not be pending any litigation or proceeding (filed by a person or entity other than Seller or its Affiliates) to restrain or prohibit the transactions contemplated by this Agreement or to obtain material damages or other material relief in connection with the consummation of such transactions. 6.2.7 Assignment Agreements. Buyer shall have executed and delivered to Seller the Assignment Agreements, duly executed by Buyer and its Affiliates (to the extent they are parties thereto) and all necessary consents thereto shall have been obtained. 6.2.8 Long Term Debt. Buyer shall have purchased the Long Term Debt, including the outstanding principal and interest thereunder, pursuant to the Assignment of Notes and shall have otherwise obtained the release of Seller and its Affiliates from liability under the Credit Support Obligations (other than the Surety Agreement) pursuant to documents and agreements in form and substance reasonably acceptable to Seller or, with respect to Credit Support Obligations other than -28- the UCC Guaranty Agreement, Buyer shall indemnify Seller and its Affiliates with respect thereto pursuant to Section 7.2(B). 6.2.9 Release. Seller and its Affiliates shall have obtained releases, in form and substance satisfactory to Seller, of all of its and its Affiliates' obligations under the Credit Support Obligations, other than the Surety Agreement. ARTICLE VII INDEMNIFICATION 7.1 Indemnification of Buyer. (A) After the Closing, subject to Sections 7.1(B), 7.5 and 7.6, Seller shall indemnify Buyer against, and hold Buyer harmless from, any loss, damage, cost, liability or expense (including reasonable costs of defense and investigations, settlements, and reasonable attorneys' fees) or penalties or fines (collectively "Losses") Buyer incurs or becomes subject to, to the extent arising out of or resulting from any inaccuracy in or breach of any of the (i) representations and warranties or (ii) covenants made by Seller herein (any such Loss being referred to herein as "Buyer Indemnified Loss"); provided that Seller shall have no liability under Section 7.1(A) unless the aggregate of all Buyer Indemnified Losses for which Seller would, but for this proviso, be liable exceeds on a cumulative basis $1,000,000, and then only to the extent of any such excess; and further provided that Seller shall not have any liability under Section 7.1(A) for any individual item where the Loss relating to such item is less than $25,000; and further provided that, in the case of Section 4.1.16, in no event shall the aggregate liability of Seller exceed $4,000,000; and further provided that the aggregate liability of Seller under this Section 7.1(A) for Buyer Indemnified Losses (excluding Buyer Indemnified Losses resulting from a breach of Sections 4.1.2 or 4.1.5(B) and excluding purchase price adjustments and matters covered by separate agreement executed concurrently herewith which state that they are not subject to such limitations) shall in no event exceed $10,000,000; and further provided that Seller's liability with respect to a breach of the representations in Section 4.1.2 and 4.1.5(B) shall not exceed the Purchase Price; and further provided that the aggregate liability of Seller under this Agreement (including Buyer Indemnified Losses resulting from breach of Section 4.1.2 or 4.1.5(B)) and under any certificate to be delivered by Seller or its Affiliates at the Closing and under any agreement delivered in connection herewith shall in no event exceed the Purchase Price; and further provided that in no event shall Seller have any obligation to indemnify Buyer with respect to any Losses arising out of default by the Company or the Subsidiaries under the credit agreements or security agreements with respect to the Long Term Debt (x) unless such default is a default with respect to (i) the payment of principal, interest, fees or other expenses required to be paid under such credit agreements or security agreements, (ii) any requirements of such credit agreements or security agreements to deposit, maintain, return or restore funds in or to project accounts or reserve accounts, or (iii) the use, application or distribution of funds, including payments to Seller, Dominion and their respective Affiliates, or (y) unless Seller had knowledge of such default at or prior to the Closing. (B) The representations and warranties in this Agreement and in any other document or certificate to be delivered at the Closing pursuant hereto shall survive the Closing solely for purposes of this Article VII and shall terminate 540 days after the Closing Date, except for (i) Sections 4.1.2, -29- 4.1.5(B), and 4.2.2, which, solely for purposes of this Article VII, shall survive indefinitely, (ii) Section 4.1.14, which shall terminate upon the expiration of the statute of limitations applicable to tax matters, and (iii) Section 4.1.16, which shall terminate 1,095 days after the Closing Date. No action can be brought with respect to any breach of any representation and warranty under this Agreement or any other document or certificate to be delivered at the Closing pursuant hereto unless a Claim Notice or Indemnity Notice specifying the breach of the representation or warranty forming the basis of such claim has been delivered to the party alleged to have breached such representation or warranty prior to the termination date of such representation or warranty as described in this Section 7.1(B). Any claim for indemnity for breach of covenant herein that pursuant to its terms is to be performed prior to the Closing shall be effective only as to matters with respect to which a Claim Notice has been delivered pursuant hereto within 180 days after the Closing Date. The limited rights provided to Buyer and Seller pursuant to this Article VII and Article VIII shall be the sole remedy for any inaccuracy in or breach of any representations, warranties or covenants contained in this Agreement or in any document or certificate to be delivered at the Closing. Except to the extent expressly set forth in Section 4.1 or in any agreement or certificate delivered by Seller or its Affiliates at the Closing, neither Seller, Company, any Subsidiary nor any of their respective Affiliates makes any representations or warranties whatsoever and Seller hereby disclaims all liability and responsibility for any other representation, warranty, statement or information made or communicated (orally or in writing) to Buyer (including, but not limited to, any information contained in the data room maintained by or on behalf of Seller or any opinions, information or advice which may have been provided to Buyer by any officer, stockholder, director, employee, agent, consultant or representative of Seller, Company, any Subsidiary or any of their respective Affiliates). Without limiting the generality of the foregoing, except as expressly set forth in Section 4.1 or any certificates delivered by Seller or its Affiliates at the Closing, neither Seller, Company, any Subsidiary nor any of their respective Affiliates makes any representation or warranty as to (i) title to any of the properties or assets of Company or any Subsidiary, (ii) the Facilities, or (iii) the prospects of the business of the Company and the Subsidiaries. SELLER EXPRESSLY DISCLAIMS AND NEGATES ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY, OR FITNESS FOR PARTICULAR PURPOSE, AND OF CONFORMITY TO SAMPLES AND MODELS. To the fullest extent permitted by Legal Requirements, Buyer and Seller hereby waive any and all rights they may have at law or in equity except as set forth in this Article VII with respect to any inaccuracy in or breach of any representation or warranty and covenant in this Agreement or in any certificates to be delivered by Seller or its Affiliates at the Closing. 7.2 Indemnification and Release of Seller. (A) After the Closing, subject to Section 7.5, Buyer shall indemnify Seller against, and hold Seller harmless from, any Losses Seller incurs or becomes subject to, to the extent arising out of or resulting from any inaccuracy in or breach of any of the (i) representations and warranties or (ii) covenants made by Buyer herein (any such Loss being referred to herein as a "Seller Indemnified Loss"); provided that Buyer shall have no liability under Section 7.2(A) unless the aggregate of all Seller Indemnified Losses (excluding Seller Indemnified Losses resulting from a breach of Section 4.2.2, 4.2.8 or 5.2.6) for which Buyer would, but for this proviso, be liable exceeds on a cumulative basis $1,000,000, and then only to the extent of any such excess; and further provided that Buyer shall not have any liability under Section 7.2(A) for any individual item where the Loss relating to such item is less than $25,000; and further provided that -30- the aggregate liability of Seller under this Section 7.2(A) for Seller Indemnified Losses (excluding Seller Indemnified Losses resulting from a breach of Section 4.2.2, 4.2.8 or 5.2.6) shall in no event exceed $10,000,000; and further provided that the aggregate liability of Buyer under this Agreement (including Seller Indemnified Losses resulting from breach of Section 4.2.2) or in any certificate delivered by Buyer or its Affiliates at the Closing) shall in no event exceed the sum of the Purchase Price and the total outstanding principal and interest under the Long Term Debt. (B) After the Closing, Buyer shall indemnify and hold harmless Seller and its Affiliates from any Losses arising out of obligations to be paid or performed from and after the Closing under the Credit Support Obligations, except for Credit Support Obligations with respect to which Seller has advised Buyer in writing at or before the Closing that any release received with respect thereto is satisfactory in form and substance to Seller. (C) Except as expressly set forth in Section 4.2 or in any certificate to be delivered by Buyer or its Affiliates at the Closing, neither Buyer nor any of its Affiliates makes any representations or warranties whatsoever, and Buyer hereby disclaims all liability and responsibility for any other representation, warranty, statement or information made or communicated (orally or in writing) to Seller and its Affiliates. To the fullest extent permitted by Legal Requirements, Seller and its Affiliates hereby waive any and all rights they may have at law or in equity except as set forth in this Article VII with respect to any inaccuracy in or breach of any representation, warranty or covenant in this Agreement or in any certificate to be delivered by Buyer or its Affiliates at the Closing. 7.3 Applicability. SUBJECT TO SECTIONS 7.5 AND 7.6, THE PROVISIONS OF THIS ARTICLE VII SHALL APPLY NOTWITHSTANDING THE SOLE, JOINT OR CONCURRENT NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT OF THE INDEMNIFIED PARTY. IF BOTH THE INDEMNIFIED PARTY AND THE INDEMNIFYING PARTY ARE ADJUDICATED NEGLIGENT OR OTHERWISE AT FAULT OR STRICTLY LIABLE WITHOUT FAULT, THE CONTRACTUAL OBLIGATIONS OF INDEMNIFICATION UNDER THIS ARTICLE VII SHALL, SUBJECT TO SECTION 7.5 AND 7.6, CONTINUE, BUT THE INDEMNIFYING PARTY SHALL INDEMNIFY THE INDEMNIFIED PARTY ONLY FOR THE PERCENTAGE OF RESPONSIBILITY FOR THE DAMAGE OR INJURIES ADJUDICATED TO BE ATTRIBUTABLE TO THE INDEMNIFYING PARTY. 7.4 Indemnification Procedures. All claims for indemnification under this Agreement shall be asserted and resolved as follows: (A) A party claiming indemnification under this Agreement (an "Indemnified Party") with respect to any third-party claim or claims asserted against the Indemnified Party ("Third Party Claim") that could give rise to a right of indemnification under this Agreement shall promptly (i) notify the party from whom indemnification is sought (the "Indemnifying Party") of the Third Party Claim and (ii) transmit to the Indemnifying Party a written notice ("Claim Notice") describing in reasonable detail the nature of the Third Party Claim, a copy of all papers served with respect to such claim (if any), the Indemnified Party's best estimate of the amount of damages attributable to the Third Party Claim and the basis of the Indemnified Party's request for indemnification under this -31- Agreement. Subject to Section 7.1(B), failure to provide such Claim Notice shall not affect the right of the Indemnified Party's indemnification hereunder except to the extent the Indemnifying Party is prejudiced thereby. Within 30 days after receipt of any Claim Notice (the "Election Period"), the Indemnifying Party shall notify the Indemnified Party (x) whether the Indemnifying Party disputes its potential liability to the Indemnified Party under this Article VII with respect to such Third Party Claim and (y) whether the Indemnifying Party desires to defend the Indemnified Party against such Third Party Claim; provided that if the Indemnifying Party fails to so notify the Indemnified Party during the Election Period, the Indemnifying Party shall be deemed to have elected to dispute such liability. (B) If the Indemnifying Party notifies the Indemnified Party within the Election Period that the Indemnifying Party does not dispute its potential liability to the Indemnified Party under this Article VII and that the Indemnifying Party elects to assume the defense of the Third Party Claim, then the Indemnifying Party shall have the right to defend, at its sole cost and expense, such Third Party Claim by all appropriate proceedings, which proceedings shall be prosecuted diligently by the Indemnifying Party to a final conclusion or settled at the discretion of the Indemnifying Party in accordance with this Section 7.4(B). The Indemnifying Party shall have full control of such defense and proceedings, including any compromise or settlement thereof; provided that counsel selected by the Indemnifying Party to defend such proceedings shall be reasonably acceptable to the Indemnified Party; and further provided that the Indemnifying Party shall not enter into any settlement agreement providing for (i) a finding of responsibility or liability on the part of the Indemnified Party, (ii) any material sanction or material restriction upon the conduct of any business, (iii) an affirmative obligation on the part of the Indemnified Party, other than an obligation to pay money which will be discharged in full by the Indemnifying Party, or (iv) any amendment to any contract, agreement, instrument or other document binding on Buyer, the Company, either Subsidiary, EC5, or their respective Affiliates; in each case, without the Indemnified Party's consent, which consent shall not be unreasonably withheld. The Indemnified Party is hereby authorized, at the sole cost and expense of the Indemnifying Party (but only if pursuant to Section 7.4(D) the Indemnified Party is actually entitled to indemnification hereunder), to file, during the Election Period, any motion, answer or other pleadings which the Indemnified Party shall deem necessary or appropriate to protect its interests or those of the Indemnifying Party and not prejudicial to the Indemnifying Party (it being understood and agreed that if an Indemnified Party takes any such action, the Indemnifying Party shall be relieved of its obligations hereunder with respect to such Third Party Claim to the extent that such action prejudiced the Indemnifying Party). If requested by the Indemnifying Party, the Indemnified Party agrees, at the sole cost and expense of the Indemnifying Party, to cooperate with the Indemnifying Party and its counsel in contesting any Third Party Claim which the Indemnifying Party elects to contest, including the making of any related counterclaim against the person or entity asserting the Third Party Claim or any cross-complaint against any person or entity. The Indemnified Party may participate in, but not control, any defense or settlement or any Third Party Claim controlled by the Indemnifying Party pursuant to this Section 7.4, and the Indemnified Party shall bear its own costs and expenses with respect to such participation. (C) If the Indemnifying Party fails to notify the Indemnified Party within the Election Period that the Indemnifying Party elects to defend the Indemnified Party pursuant to Section 7.4(B), -32- or if the Indemnifying Party elects to defend the Indemnified Party pursuant to Section 7.4(B) but fails to diligently prosecute or settle the Third Party Claim, then the Indemnified Party shall have the right to defend, at the sole cost and expense of the Indemnifying Party (but only if pursuant to Section 7.4(D) the Indemnified Party is actually entitled to indemnification hereunder), the Third Party Claim by all appropriate proceedings, which proceedings shall be promptly and vigorously prosecuted by the Indemnified Party to a final conclusion or settled. The Indemnified Party shall have full control of such defense and proceedings; provided, however, that the Indemnified Party may not enter into, without the Indemnifying Party's consent, which shall not be unreasonably withheld, any compromise or settlement of such Third Party Claim. The Indemnifying Party may participate in, but not control, any defense or settlement controlled by the Indemnified Party pursuant to this Section 7.4(C), and the Indemnifying Party shall bear its own costs and expenses with respect to such participation. (D) If the Indemnifying Party elects not to (or is deemed to have elected not to) assume the defense of a Third Party Claim, or elects to assume the defense of a Third Party Claim, but reserves the right to dispute whether such claim is an indemnifiable loss under this Article VII, the determination of whether the Indemnified Party is entitled to indemnification hereunder shall be resolved by litigation in an appropriate court of competent jurisdiction. (E) In the event any Indemnified Party should have a claim against any Indemnifying Party hereunder which does not involve a Third Party Claim, the Indemnified Party shall promptly transmit to the Indemnifying Party a written notice (the "Indemnity Notice") describing in reasonable detail the nature of the claim, the Indemnified Party's best estimate of the amount of damages attributable to such claim and the basis of the Indemnified Party's request for indemnification under this Agreement. If the Indemnifying Party does not notify the Indemnified Party within 30 days from its receipt of the Indemnity Notice that the Indemnifying Party disputes such claim, the Indemnifying Party shall be deemed to have disputed such claim. If the Indemnifying Party has disputed (or is deemed to have disputed) such claim, such dispute shall be resolved by litigation in an appropriate court of competent jurisdiction. (F) Payments of all amounts owing by the Indemnifying Party with respect to a Third Party Claim shall be made within 30 days after the latest of (i) the settlement of the Third Party Claim, (ii) the expiration of the period for appeal of a final adjudication of such Third Party Claim and (iii) the expiration of the period for appeal of a final adjudication of the Indemnifying Party's liability to the Indemnified Party under this Agreement. Payments of all amounts owing by the Indemnifying Party as described in Section 7.3(E) shall be made within 30 days after the earlier of the expiration of the period for appeal of a final adjudication or agreement between the Indemnifying Party and the Indemnified Party as to the Indemnifying Party's liability to the Indemnified Party under this Agreement. 7.5 Limitation on Liabilities. (A) IN NO EVENT SHALL THE INDEMNIFICATION OBLIGATIONS UNDER THIS AGREEMENT (INCLUDING UNDER ARTICLE VII AND ARTICLE VIII) OR THE TERM "LOSSES" COVER OR INCLUDE CONSEQUENTIAL, INCIDENTAL, SPECIAL, INDIRECT, OR PUNITIVE DAMAGES OR LOST PROFITS SUFFERED BY THE COMPANY, BUYER, SELLER OR SELLER'S AFFILIATES, WHETHER -33- BASED ON STATUTE, CONTRACT, TORT OR OTHERWISE, AND WHETHER OR NOT ARISING FROM THE INDEMNIFYING PARTY'S SOLE, JOINT OR CONCURRENT NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT. (B) Notwithstanding anything to the contrary contained in this Agreement, (i) no amounts of indemnity shall be payable as a result of any claim in respect of a Loss under Articles VII or VIII to the extent that (1) the Indemnified Party failed to promptly notify the Indemnifying Party of such claim and the Indemnifying Party's liability with respect to such claim was adversely affected by such failure, or (2) the Indemnified Party had a reasonable opportunity, but failed, in good faith to mitigate the Loss, including the failure to use Best Efforts to recover under a policy of insurance or under a contractual right of set-off or indemnity, (ii) all indemnifiable Losses under Articles VII or VIII shall be net of insurance proceeds recovered or recoverable by the Indemnified Party and net of tax benefits to the Indemnified Party and its Affiliates, (iii) in no event shall Seller be responsible for more than 50% of the amount of Loss suffered or incurred in whole or in part by the Company or the Subsidiaries (as opposed to a Loss suffered or incurred solely by Buyer; for example, a breach of Section 4.1.5(B), and (iv) the amounts of indemnity and Losses described in this Section 7.5 shall in all cases be subject to the restrictions in Section 7.1, and the provisions of this Section 7.5 shall in no event expand the liability of Seller under Section 7.1. The Indemnified Party hereby waives (or will cause to be waived) any subrogation rights that its insurers may have with respect to any indemnifiable Losses. 7.6 Notification by Seller of Certain Matters. Seller may, at the Closing, notify Buyer in one or more of the certificates to be delivered pursuant to Section 6.1.3, in reasonable detail of any representation or warranty of Seller that was not true and correct as of the date of this Agreement or as of the Closing or of any covenant of Seller that has not been performed and complied with and, if Buyer shall nevertheless close under this Agreement, none of the matters set forth in such certificate shall be deemed to be an inaccuracy in or breach of any of the representations and warranties or covenants of Seller herein for purposes of, and Buyer shall not be entitled to be indemnified as to any of such matters pursuant to, this Article VII. ARTICLE VIII TERMINATION RIGHTS 8.1 Termination. This Agreement may be terminated at any time prior to the Closing Date as follows, and in no other manner: (i) by mutual consent of Buyer and Seller; (ii) by notice from Seller to Buyer, if the Closing Date shall not have occurred on or before May 15, 1997; (iii) by notice from Buyer to Seller, if the Closing Date shall not have occurred on or before May 15, 1997; -34- (iv) by either party by notice to the other, if (a) a final non-appealable judgment has been entered against such party or any of its Affiliates restraining, prohibiting or declaring illegal the transactions contemplated hereby or (b) the Company or any of the Subsidiaries shall have declared bankruptcy or been involuntarily put into bankruptcy or receivership; or (v) notwithstanding Section 5.1.10 or any other provision of this Agreement, by notice from Seller to Buyer, if at any time prior to the Closing Seller reasonably believes, in its sole discretion, that the approvals required (in Seller's judgment) to enter into this Agreement or the Assignment of Notes or to consummate the transactions contemplated hereby or thereby in a manner that releases Seller and its Affiliates from liability under the Credit Support Obligations (including any approvals from Dominion or its Affiliates, the lenders under the Long Term Debt, and Union Carbide Corporation under the Guaranty Agreement, but excluding any consent of Texas Utilities Electric Company under the Surety Agreement) will not be obtained in a time period satisfactory to Seller in its sole discretion. 8.2 Limitation on Right to Terminate; Effect of Termination. (A) A party shall not be allowed to exercise any right of termination pursuant to Section 8.1 if the event giving rise to the termination right shall be due to the willful failure of such party to perform or observe in any material respect any of the covenants set forth herein to be performed or observed by such party. (B) If this Agreement is terminated as permitted under Section 8.1, such termination shall be without liability of or to any party to this Agreement or any Affiliate, shareholder, director, officer, employee, agent or representative of such party; provided that Sections 4.1.19, 4.2.6, 5.1.6, 5.1.7, 5.1.8, 5.2.2, 5.2.3, 5.2.4, 8.2, 9.10 and 9.11 shall survive any such termination; and further provided that if any such termination under Section 8.1 (excluding Section 8.1(v)) shall result from the willful failure of any party or its Affiliate to perform a covenant of this Agreement or from a willful breach of this Agreement by any party or its Affiliate, or a breach, whether or not willful, of Section 4.2.8 or 5.2.6 by Buyer, then, subject to Article VII, such party shall be liable for Losses sustained or incurred by the other parties as a result of such failure or breach. ARTICLE IX GENERAL 9.1 Exclusive Agreement; Schedules. This Agreement and the attached schedules and exhibits, the agreements and documents to be executed pursuant hereto or which are executed concurrently herewith and the Confidentiality Agreement set forth the entire agreement and understanding of the parties in respect of the transactions contemplated hereby and supersede all prior agreements, arrangements and undertakings (oral or written) relating to the subject matter hereof. The disclosures in the schedules hereto are to be taken as relating to the representations and warranties of Seller as a whole. The inclusion of information in the schedules hereto shall not be construed as an admission that such information is material. In addition, matters reflected in the schedules are not necessarily limited to matters required by this Agreement to be reflected on such schedules. Such additional matters are set forth for information purposes only and do not necessarily include -35- other matters of a similar nature. No representation, promise, inducement or statement of intention has been made by any party which is not embodied in or superseded by this Agreement or the Confidentiality Agreement or in the agreements and documents to be executed pursuant hereto, and no party shall be bound by or liable for any alleged representation, promise, inducement or statement of intention not so set forth. 9.2 Successors and Assigns. All of the terms, covenants, representations, warranties and conditions of this Agreement shall be binding upon, and inure to the benefit of, and be enforceable by, the parties hereto and their respective permitted successors and assigns (and in the case of indemnities to the benefit of all persons indemnified). This Agreement and the rights and obligations hereunder shall not be assigned by any party hereto (by operation of law or otherwise) without the prior written consent of the other party, except that any party may assign an interest in all of its rights hereunder to any Affiliate; provided that no assignment shall relieve the assigning party of any of its representations, warranties, or obligations contained herein, and except that after the Closing Buyer may collaterally assign its rights hereunder to the lenders of the Company, the Subsidiaries, Buyer or its Affiliates, to secure the Long Term Debt or any extensions or replacements thereof or any other financing or refinancing of the Facilities. 9.3 Amendments. This Agreement may be amended, modified, superseded or canceled, and any of the terms, covenants, representations, warranties or conditions hereof may be waived, only by a written instrument executed by the parties hereto, or, in the case of a waiver, by or on behalf of the party waiving compliance. The failure of any party at any time or times to require performance of any provisions hereof shall in no manner affect the right at a later time to enforce the same. No waiver by any party of any condition, or of any breach of any term, covenant, representation or warranty contained in this Agreement, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such condition or breach or a waiver of any other condition or of any breach of any other term, covenant, representation or warranty. 9.4 Records and Access. (A) After the Closing, Seller shall deliver to Buyer all files and records in its possession that are normally maintained by Seller or its Affiliates in respect of the Company (including all documents and information contained in the data room maintained by or on behalf of Seller) as soon as practicable; provided that Seller may make and keep copies of such files and records. (B) From and after the Closing, Buyer shall maintain copies of all books, records and other information (including books, records and information relating to financial information, taxes and litigation) relating to the Facilities and the Company and shall not destroy any of same without first allowing Seller, at Seller's expense, the opportunity to make copies of same for a period of not less than five years (or if longer, the applicable statute of limitations period). During such period, Buyer shall give Seller and their representatives reasonable cooperation, access and staff assistance, during normal business hours and upon reasonable notice, with respect to such books, records and information as may be necessary for general business purposes, including for the preparation of tax returns and financial statements and the management and handling of tax audits and litigation; provided that such requested cooperation, access and assistance shall not unreasonably interfere with the normal operations of Buyer. -36- 9.5 Further Assurances. Each party agrees to execute such further instruments or documents as the other party may from time to time reasonably request in order to confirm or carry out the transactions contemplated in this Agreement; provided that no such instrument or document shall expand a party's obligations or liabilities beyond that contemplated in this Agreement. 9.6 Notices. All notices, requests, demands and other communications (collectively, "Notices") required or permitted to be given hereunder shall be in writing and delivered personally, or by facsimile transmission or mailed first class, postage prepaid, registered or certified mail, as follows: If to Buyer, to: Calpine Finance Company 50 West San Fernando San Jose, California 95113 Attention: Ron Walter and Joseph E. Ronan Facsimile Number: (405) 995-0505 with a copy to: Washburn, Briscoe & McCarthy A Professional Corporation 55 Francisco Street, Suite 600 San Francisco, California 94133 Attention: David C. Spielberg Facsimile Number: (415) 421-5044 If to Seller, to: Enron Power Corp. Enron Building 1400 Smith Houston, Texas 77002 Attention: General Counsel Facsimile Number: (713) 646-3491 with a copy to: Vinson & Elkins L.L.P. 2300 First City Tower 1001 Fannin Houston, Texas 77002 Attention: Marcia E. Backus Facsimile Number: (713) 615-5606 -37- All Notices shall be effective upon receipt. Any party may change its Notice address by giving written Notice to the other in the manner specified above. 9.7 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES. 9.8 Severability. In the event any of the provisions hereof are held to be invalid or unenforceable under any Legal Requirement, the remaining provisions hereof shall not be affected thereby. In such event, the parties hereto agree and consent that such provisions and this Agreement shall be modified and reformed so as to effect the original intent of the parties as closely as possible with respect to those provisions which were held to be invalid or unenforceable. 9.9 Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute but one agreement. 9.10 Expenses. Except as expressly provided in this Agreement, whether or not the transactions contemplated hereby are consummated, each party shall pay its own expenses incident to the preparation of this Agreement and for consummating the transaction. 9.11 Attorneys' Fees. If any party institutes legal action against the other to enforce this Agreement, the party prevailing pursuant to any final judgment shall be entitled to recover its reasonable attorneys' fees and expenses from the other party that are attributable solely to such enforcement (subject to the caps and other limits set forth in Article VII). -38- IN WITNESS WHEREOF, the parties have duly executed this instrument the day and year first above written. Seller: ENRON POWER CORP. By: Name: Title: Buyer: CALPINE FINANCE COMPANY By: Name: Title: C:\PUR15.WPD -39- PURCHASE AND SALE AGREEMENT TABLE OF CONTENTS ARTICLE I DEFINITIONS 1.1 Definitions................................................................1 - ----------- 1.2 Terminology................................................................6 - ----------- ARTICLE II PURCHASE AND SALE 2.1 Purchase and Sale of Class A Common Stock..................................7 - ----------------------------------------- 2.2 Purchase Price.............................................................7 - -------------- 2.3 Determination of Purchase Price............................................7 - ------------------------------- ARTICLE III CLOSING DATE ARTICLE IV REPRESENTATIONS AND WARRANTIES 4.1 Representations and Warranties of Seller...................................9 - ---------------------------------------- 4.1.1 Organization and Good Standing...........................................9 - ------------------------------ 4.1.2 Authority of Seller......................................................9 - ------------------- 4.1.3 No Violations With Respect to Seller.....................................9 - ------------------------------------ 4.1.4 Approvals and Consents for Seller.......................................10 --------------------------------- 4.1.5 Ownership...............................................................10 - --------- 4.1.6 Company and Subsidiaries................................................11 - ------------------------ 4.1.7 No Violation With Respect to Company and Subsidiaries...................11 - ----------------------------------------------------- 4.1.8 No Default; Legal Requirements..........................................12 - ------------------------------ 4.1.9 Financial Statements....................................................13 - -------------------- 4.1.10 Leases; Contracts; Agreements and Commitments..........................13 - --------------------------------------------- 4.1.11 Litigation.............................................................15 - ---------- 4.1.12 Government Permits.....................................................15 - ------------------ 4.1.13 Employee Benefits......................................................15 - ----------------- 4.1.14 Tax Matters............................................................15 - ----------- 4.1.15 Real Property..........................................................16 - ------------- 4.1.16 Environmental Matters..................................................16 - --------------------- 4.1.17 Regulatory Matters.....................................................16 - ------------------ 4.1.18 Sole Purpose; Nature of Business.......................................17 - -------------------------------- 4.1.19 Brokerage or Finders Fees..............................................17 - ------------------------- -i- 4.1.20 Insurance..............................................................17 - --------- 4.1.21 Material Assets and Properties.........................................17 - ------------------------------ 4.2 Representations and Warranties of Buyer...................................17 - --------------------------------------- 4.2.1 Organization and Good Standing..........................................17 - ------------------------------ 4.2.2 Authority of Buyer......................................................17 - ------------------ 4.2.3 No Violations...........................................................18 - ------------- 4.2.4 Approvals and Consents..................................................18 - ---------------------- 4.2.5 Acquisition as Investment...............................................18 - ------------------------- 4.2.6 Brokerage or Finders Fees...............................................18 - ------------------------- 4.2.7 No Electric Utility Ownership...........................................18 - ----------------------------- 4.2.8 Available Funds.........................................................19 - --------------- 4.2.9 Knowledgeable Buyer.....................................................19 - ------------------- ARTICLE V ADDITIONAL AGREEMENTS AND COVENANTS 5.1 Covenants of Seller.......................................................19 - ------------------- 5.1.1 Certain Changes.........................................................19 - --------------- 5.1.2 Operation of Business...................................................21 - --------------------- 5.1.3 Insurance...............................................................21 - --------- 5.1.4 Access..................................................................21 - ------ 5.1.5 Antitrust Notification and Other Governmental Filings...................21 - ----------------------------------------------------- 5.1.6 Confidentiality.........................................................22 - --------------- 5.1.7 Public Announcements....................................................22 - -------------------- 5.1.8 Transaction Costs.......................................................22 - ----------------- 5.1.9 Noncompetition..........................................................22 - -------------- 5.1.10 Satisfaction of Closing Conditions.....................................22 - ---------------------------------- 5.2 Covenants of Buyer........................................................22 - ------------------ 5.2.1 Antitrust Notification and Other Governmental Filings...................22 - ----------------------------------------------------- 5.2.2 Public Announcements....................................................23 - -------------------- 5.2.3 Confidential Information................................................23 - ------------------------ 5.2.4 Transaction Costs.......................................................23 - ----------------- 5.2.5 Satisfaction of Closing Conditions......................................23 - ---------------------------------- 5.2.6 Bank Account and Line of Credit.........................................23 - ------------------------------- 5.2.7 Certain FERC Matters....................................................23 - -------------------- 5.3 Mutual Covenants..........................................................24 - ---------------- 5.3.1 Release.................................................................24 - ------- 5.3.2 Tax Returns.............................................................24 - ----------- 5.3.4 Employment Matters......................................................24 - ------------------ ARTICLE VI CONDITIONS TO CLOSING -ii- 6.1 Buyer's Obligation to Close...............................................26 - --------------------------- 6.1.1 Compliance with Agreement...............................................26 - ------------------------- 6.1.2 Representations and Warranties..........................................26 - ------------------------------ 6.1.3 Certificate.............................................................26 - ----------- 6.1.4 Filings.................................................................27 - ------- 6.1.5 Litigation..............................................................27 - ---------- 6.1.6 Stock Certificates; Assignment Agreements...............................27 - ----------------------------------------- 6.1.7 Opinion.................................................................27 - ------- 6.1.8 Secretary's Certificate.................................................27 - ----------------------- 6.1.9 Resignations............................................................27 - ------------ 6.1.10 Scheduled Payments.....................................................27 - ------------------ 6.1.11 Affidavits.............................................................27 - ---------- 6.1.12 Certain Other Agreements...............................................27 - ------------------------ 6.2 Seller's Obligation to Close..............................................27 - ---------------------------- 6.2.1 Compliance with Agreement...............................................28 - ------------------------- 6.2.2 Representations and Warranties..........................................28 - ------------------------------ 6.2.3 Certificate.............................................................28 - ----------- 6.2.4 Opinion.................................................................28 - ------- 6.2.5 Filings.................................................................28 - ------- 6.2.6 Litigation..............................................................28 - ---------- 6.2.7 Assignment Agreements...................................................28 - --------------------- 6.2.8 Long Term Debt..........................................................28 - -------------- 6.2.9 Release.................................................................28 - ------- 6.2.10 Certain Other Agreements...............................................28 - ------------------------ ARTICLE VII INDEMNIFICATION 7.1 Indemnification of Buyer..................................................29 - ------------------------ 7.2 Indemnification and Release of Seller.....................................30 - ------------------------------------- 7.3 Applicability.............................................................31 - ------------- 7.4 Indemnification Procedures................................................31 - -------------------------- 7.5 Limitation on Liabilities.................................................33 - ------------------------- 7.6 Notification by Seller of Certain Matters.................................34 - ----------------------------------------- ARTICLE VIII TERMINATION RIGHTS 8.1 Termination...............................................................34 - ----------- 8.2 Limitation on Right to Terminate; Effect of Termination...................35 - ------------------------------------------------------- ARTICLE IX GENERAL -iii- 9.1 Exclusive Agreement; Schedules............................................35 - ------------------------------ 9.2 Successors and Assigns....................................................35 - ---------------------- 9.3 Amendments................................................................36 - ---------- 9.4 Records and Access........................................................36 - ------------------ 9.5 Further Assurances........................................................36 - ------------------ 9.6 Notices...................................................................37 - ------- 9.7 Governing Law.............................................................37 - ------------- 9.8 Severability..............................................................38 - ------------ 9.9 Counterparts..............................................................38 - ------------ 9.10 Expenses.................................................................38 - -------- 9.11 Attorneys' Fees..........................................................38 - --------------- Exhibits to Purchase and Sale Agreement: Exhibit A - Assignment and Assumption Agreements Schedules to Purchase and Sale Agreement: Schedule 1.1(A) - Knowledge Schedule 4.1.3 - No Violations of Seller Schedule 4.1.5(A) - Company's Capital Stock Schedule 4.1.5(E) - Subsidiaries' Capital Stock Debt; Other Securities Schedule 4.1.7 - No Violations of Company and Subsidiaries Schedule 4.1.8 - No Default; Legal Requirements Schedule 4.1.9(B)-1 - December 31 Balance Sheet Schedule 4.1.9(B)-2 - Financial Statements Schedule 4.1.9(C) - Balance Sheet Liabilities Schedule 4.1.10(A) - Contracts of Company and its Affiliates Schedule 4.1.10(B) - Contracts of Seller and its Affiliates Schedule 4.1.10(C) - Obligations of Seller and its Affiliates to be Assumed by Buyer Schedule 4.1.11 - Litigation Schedule 4.1.14 - Tax Matters Schedule 4.1.15 - Real Property Schedule 4.1.16 - Environmental Matters Schedule 4.1.20 - Insurance Schedule 4.1.21 - Excluded Assets Schedule 5.1.1 - Ordinary Course of Business Schedule 5.3.4(A) - Employment Matters Schedule 6.1.9 - Directors and Officers C:\PUR15.WPD -iv- PURCHASE AND SALE AGREEMENT by and between ENRON POWER CORP. (as Seller) and CALPINE FINANCE COMPANY (as Buyer) Dated as of March 27, 1997 -----END PRIVACY-ENHANCED MESSAGE-----