DEFM14A 1 d476502ddefm14a.htm DEFM14A DEFM14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

(Rule 14a-101)

INFORMATION REQUIRED IN

PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

 

 

Filed by the Registrant  ☒                             Filed by a Party other than the Registrant  ☐

Check the appropriate box:

 

  Preliminary Proxy Statement
  Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
  Definitive Proxy Statement
  Definitive Additional Materials
  Soliciting Material Pursuant to § 240.14a-12

Calpine Corporation

(Name of Registrant as Specified in Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

  No fee required.
  Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
  (1)  

Title of each class of securities to which transaction applies:

 

     

  (2)  

Aggregate number of securities to which transaction applies:

 

     

  (3)  

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

     

  (4)  

Proposed maximum aggregate value of transaction:

 

     

  (5)  

Total fee paid:

 

     

  Fee paid previously with preliminary materials.
  Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
  (1)  

Amount previously paid:

 

     

  (2)  

Form, Schedule or Registration Statement No.:

 

     

  (3)  

Filing Party:

 

     

  (4)  

Date Filed:

 

     

 

 

 


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LOGO

November 13, 2017

Dear Calpine Stockholder:

On behalf of the board of directors of Calpine Corporation (“Calpine”), we cordially invite you to attend a special meeting of Calpine’s stockholders to be held at 717 Texas Avenue, Suite 1000, Houston, Texas 77002, at 8:00 a.m., Central Time, on December 15, 2017.

On August 17, 2017, Calpine entered into a definitive Agreement and Plan of Merger (as the same may be amended from time to time, the “Merger Agreement”) with Volt Parent, LP (“Parent”) and Volt Merger Sub, Inc., a wholly-owned subsidiary of Parent (“Merger Sub”), providing for the acquisition of Calpine by Parent. Parent and Merger Sub were formed by Energy Capital Partners III, LLC on behalf of itself, its affiliated funds and a consortium of co-investors, including Access Industries, Inc. and the Canada Pension Plan Investment Board. Pursuant to the terms of the Merger Agreement, Merger Sub will merge with and into Calpine, with Calpine continuing as the surviving corporation and becoming a subsidiary of Parent (the “Merger”). At the special meeting, you will be asked to consider and vote upon a proposal to adopt the Merger Agreement, thereby approving the Merger, and certain other matters as set forth in the stockholder notice and the accompanying proxy statement.

If the Merger is consummated, Calpine’s stockholders will have the right to receive $15.25 in cash, without interest and less any applicable withholding taxes, for each share of Calpine’s common stock, par value $0.001 per share, other than certain excluded shares (as defined in the accompanying proxy statement), that they own immediately prior to the effective time of the Merger.

After careful consideration, the board of directors of Calpine (the “Calpine Board”) has unanimously determined that the terms of the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Merger, are advisable and fair to, and in the best interests of, Calpine and its stockholders, and has approved and declared advisable the terms of the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Merger. Accordingly, the Calpine Board unanimously recommends that you vote “FOR” the proposal to adopt the Merger Agreement and “FOR” the proposal to adjourn the special meeting, if necessary or advisable, to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the Merger Agreement.

In addition, the Calpine Board unanimously recommends that you vote “FOR” the proposal to approve, on an advisory (non-binding) basis, certain “golden parachute” compensation that may be payable to Calpine’s named executive officers in connection with the consummation of the Merger. Adoption of the Merger Agreement and approval of the “golden parachute” compensation proposal are subject to separate votes by Calpine’s stockholders. Approval of the “golden parachute” compensation proposal is advisory (non-binding) and is not a condition to the consummation of the Merger.

In order for the Merger Agreement to be adopted, holders of a majority of the outstanding shares of Calpine’s common stock entitled to vote on the proposal to adopt the Merger Agreement at the special meeting must cast the votes represented by such shares of common stock “FOR” such proposal. In order for each of the adjournment proposal and the “golden parachute” compensation proposal to be approved, holders of a majority of the outstanding shares of Calpine’s common stock present in person or represented by proxy and entitled to vote on such proposal at the special meeting must cast the votes represented by such shares of common stock “FOR” such proposal. If, however, holders of less than a majority of the votes represented by shares of Calpine’s common stock issued and outstanding at the close of business on the record date for the special meeting and entitled to be cast at the special meeting are present in person or represented by proxy, approval of the adjournment proposal will require the affirmative vote of a majority of the votes represented by shares of


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Calpine’s common stock present in person or represented by proxy at the special meeting and entitled to vote on such proposal.

Your vote is very important, regardless of the number of shares of Calpine’s common stock you own. Whether or not you plan to attend the special meeting in person, please complete, sign, date and return, as promptly as possible, the enclosed proxy card in the accompanying prepaid reply envelope, or submit your proxy by telephone or over the Internet, prior to the special meeting to ensure that your shares of Calpine’s common stock will be represented at the special meeting if you are unable to attend. If you attend the special meeting and vote in person, your vote by ballot will revoke any proxy previously submitted. The failure to vote your shares of Calpine’s common stock will have the same effect as voting “AGAINST” the proposal to adopt the Merger Agreement.

If your shares of Calpine’s common stock are held in “street name” by your bank, brokerage firm or other nominee, your bank, brokerage firm or other nominee will be unable to vote your shares of Calpine’s common stock without instructions from you. You should instruct your bank, brokerage firm or other nominee on how to vote your shares of Calpine’s common stock in accordance with the procedures provided by your bank, brokerage firm or other nominee. The failure to instruct your bank, brokerage firm or other nominee to vote your shares of Calpine’s common stock will have the same effect as voting “AGAINST” the proposal to adopt the Merger Agreement.

The accompanying proxy statement provides you with detailed information about the special meeting, the Merger Agreement and the Merger. A copy of the Merger Agreement is attached as Annex A to the accompanying proxy statement. We encourage you to read the entire proxy statement and its annexes, including the Merger Agreement, carefully. You may also obtain additional information about Calpine from documents Calpine has filed with the U.S. Securities and Exchange Commission.

On behalf of the Calpine Board and the management of Calpine, we thank you for your support.

Best regards,

 

LOGO

     

LOGO

  

 

  

 

  

 

  

 

Frank Cassidy

Chairman of the Board

     

John B. (Thad) Hill III

President and Chief Executive Officer

  

The proxy statement is dated November 13, 2017, and is first being mailed to our stockholders on or about November 14, 2017.

Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved the Merger, passed upon the merits or fairness of the Merger Agreement or the transactions contemplated by the Merger Agreement, including the Merger, or passed upon the adequacy or accuracy of the information contained in this document. Any representation to the contrary is a criminal offense.


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LOGO

CALPINE CORPORATION

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON DECEMBER 15, 2017

To the Stockholders of Calpine Corporation:

A special meeting of stockholders of Calpine Corporation (“Calpine”) will be held at 717 Texas Avenue, Suite 1000, Houston, Texas 77002, at 8:00 a.m., Central Time, on December 15, 2017, for the purpose of considering and voting upon the following matters:

 

  1. To consider and vote on a proposal to adopt the Agreement and Plan of Merger, dated as of August 17, 2017 (as the same may be amended from time to time, the “Merger Agreement”), by and among Calpine, Volt Parent, LP, a Delaware limited partnership (“Parent”), and Volt Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of Parent (“Merger Sub”), providing for the acquisition of Calpine by Parent. Pursuant to the terms of the Merger Agreement, Merger Sub will merge with and into Calpine, with Calpine continuing as the surviving corporation and becoming a subsidiary of Parent (the “Merger”). A copy of the Merger Agreement is attached as Annex A to the proxy statement of which this notice forms a part.

 

  2. To consider and vote on a proposal to adjourn the special meeting, if necessary or advisable, to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the Merger Agreement.

 

  3. To consider and cast an advisory (non-binding) vote on a proposal to approve certain “golden parachute” compensation that may be payable to Calpine’s named executive officers in connection with the consummation of the Merger.

The board of directors of Calpine (the “Calpine Board”) has fixed the close of business on November 9, 2017, as the record date for determining stockholders entitled to notice of, and to vote at, the special meeting or any adjournment or postponement thereof.

Your vote is very important, regardless of the number of shares of Calpine’s common stock you own. The Merger cannot be consummated unless holders of a majority of the outstanding shares of Calpine’s common stock entitled to vote on the proposal to adopt the Merger Agreement at the special meeting cast the votes represented by such shares of common stock “FOR” such proposal. In order for each of the adjournment proposal and the “golden parachute” compensation proposal to be approved, holders of a majority of the outstanding shares of Calpine’s common stock present in person or represented by proxy and entitled to vote on such proposal at the special meeting must cast the votes represented by such shares of common stock “FOR” each such proposal. If, however, holders of less than a majority of the votes represented by shares of Calpine’s common stock issued and outstanding at the close of business on the record date for the special meeting and entitled to be cast at the special meeting are present in person or represented by proxy, approval of the adjournment proposal will require the affirmative vote of a majority of the votes represented by shares of Calpine’s common stock present in person or represented by proxy at the special meeting and entitled to vote on such proposal.

Whether or not you plan to attend the special meeting in person, we request that you complete, sign, date and return, as promptly as possible, the enclosed proxy card in the accompanying prepaid reply envelope, or submit your proxy by telephone or over the Internet, in each case, prior to the special meeting to ensure that your shares of Calpine’s common stock will be represented at the special meeting if you are unable to attend. If you attend the special meeting and vote in person, your vote by ballot will revoke any proxy previously submitted. The failure to vote your shares of Calpine’s common stock will have the same effect as voting “AGAINST” the proposal to adopt the Merger Agreement.


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If your shares of Calpine’s common stock are held in “street name” by your bank, brokerage firm or other nominee, your bank, brokerage firm or other nominee will be unable to vote your shares of Calpine’s common stock without instructions from you. You should instruct your bank, brokerage firm or other nominee on how to vote your shares of Calpine’s common stock in accordance with the procedures provided by your bank, brokerage firm or other nominee. The failure to instruct your bank, brokerage firm or other nominee to vote your shares of Calpines common stock will have the same effect as voting AGAINST the proposal to adopt the Merger Agreement.

After careful consideration, the Calpine Board has unanimously determined that the terms of the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Merger, are advisable and fair to, and in the best interests of, Calpine and its stockholders, and has approved and declared advisable the terms of the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Merger. Accordingly, the Calpine Board unanimously recommends that you vote “FOR” the proposal to adopt the Merger Agreement and “FOR” the proposal to adjourn the special meeting, if necessary or advisable, to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the Merger Agreement. In addition, the Calpine Board unanimously recommends that you vote “FOR” the proposal to approve, on an advisory (non-binding) basis, certain “golden parachute” compensation that may be payable to Calpine’s named executive officers in connection with the consummation of the Merger. Approval of the “golden parachute” compensation is advisory (non-binding) and is not a condition to the consummation of the Merger.

Holders of Calpine’s common stock are or may be entitled to assert appraisal rights with respect to the Merger under Section 262 of the General Corporation Law of the State of Delaware. A copy of Section 262 is attached as Annex C to the proxy statement.

The proxy statement provides you with detailed information about the special meeting, the Merger Agreement and the Merger. A copy of the Merger Agreement is attached as Annex A to the proxy statement. We encourage you to read the entire proxy statement and its annexes, including the Merger Agreement, carefully. You may also obtain additional information about Calpine from documents Calpine has filed with the U.S. Securities and Exchange Commission. If you have any questions concerning the Merger or the proxy statement, would like additional copies of the proxy statement or need help voting your shares of our common stock, please contact our proxy solicitor:

Innisfree M&A Incorporated

501 Madison Avenue, 20th Floor

New York, New York 10022

Stockholders may call toll free: (888) 750-5834

Banks and Brokers may call collect: (212) 750-5833

 

November 13, 2017    BY ORDER OF THE BOARD OF DIRECTORS
  

LOGO

W. Thaddeus Miller

   Executive Vice President, Chief Legal Officer and Corporate Secretary


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TABLE OF CONTENTS

 

SUMMARY

     1  

Parties to the Merger

     1  

The Special Meeting

     2  

The Merger

     4  

Recommendation of the Calpine Board; Reasons for the Merger

     5  

Opinion of Calpine’s Financial Advisor

     6  

Financing of the Merger

     7  

Limited Guarantee

     8  

Interests of Certain Persons in the Merger

     8  

Material United States Federal Income Tax Consequences

     8  

Regulatory Approvals

     9  

Litigation Relating to the Merger

     9  

The Merger Agreement

     10  

Market Price of Calpine Common Stock

     16  

Appraisal Rights

     16  

Delisting and Deregistration of Calpine Common Stock

     17  

Help in Answering Questions

     17  

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

     18  

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION

     28  

PARTIES TO THE MERGER

     30  

THE SPECIAL MEETING

     32  

Time, Place and Purpose of the Special Meeting

     32  

Recommendation of the Calpine Board

     32  

Record Date and Quorum

     32  

Attending the Special Meeting

     33  

Vote Required

     33  

Voting of Proxies

     34  

Revocability of Proxies

     36  

Voting by Calpine’s Directors and Executive Officers

     36  

Householding

     36  

Tabulation of Votes

     36  

Adjournments

     36  

Appraisal Rights

     37  

Payment of Solicitation Expenses

     37  

Other Business

     37  

Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to be Held on December 15, 2017

     38  

Questions and Additional Information

     38  

THE MERGER (PROPOSAL 1)

     39  

Structure of the Merger

     39  

Merger Consideration

     39  

Background of the Merger

     39  

 

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Recommendation of the Calpine Board; Reasons for the Merger

     51  

Opinion of Calpine’s Financial Advisor

     57  

Certain Company Projections

     65  

Financing of the Merger

     73  

Limited Guarantee

     77  

Closing and Effective Time of the Merger

     78  

Payment of Merger Consideration and Surrender of Stock Certificates

     78  

Interests of Certain Persons in the Merger

     79  

Persons Retained, Employed, Compensated or Used

     90  

Accounting Treatment

     90  

Material United States Federal Income Tax Consequences

     90  

Regulatory Approvals

     94  

Litigation Relating to the Merger

     96  

THE MERGER AGREEMENT

     97  

Explanatory Note Regarding the Merger Agreement

     97  

Terms of the Merger Agreement

     97  

ADJOURNMENT OF THE SPECIAL MEETING (PROPOSAL 2)

     128  

Adjournment of the Special Meeting

     128  

Vote Required and Recommendation of the Calpine Board

     128  

ADVISORY VOTE ON GOLDEN PARACHUTE COMPENSATION (PROPOSAL 3)

     129  

Golden Parachute Compensation

     129  

Vote Required and Recommendation of the Calpine Board

     133  

MARKET PRICE OF CALPINE COMMON STOCK

     135  

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     136  

APPRAISAL RIGHTS

     140  

DELISTING AND DEREGISTRATION OF CALPINE COMMON STOCK

     145  

OTHER MATTERS

     146  

Other Matters for Action at the Special Meeting

     146  

Stockholder Proposals and Nominations for the 2018 Annual Meeting

     146  

WHERE YOU CAN FIND MORE INFORMATION

     147  

 

Annex A   Agreement and Plan of Merger, dated as of August 17, 2017, by and among Calpine Corporation, Volt Parent, LP and Volt Merger Sub, Inc.      A-1  
Annex B   Opinion of Lazard Frères & Co. LLC      B-1  
Annex C   Section 262 of the General Corporation Law of the State of Delaware      C-1  

 

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This proxy statement and the enclosed proxy card are first being mailed on or about November 14, 2017, to Calpine’s stockholders who owned shares of its common stock, par value $0.001 per share, which we refer to as “Calpine common stock,” as of the close of business on November 9, 2017.

SUMMARY

The following summary highlights selected information in this proxy statement and may not contain all the information that may be important to you. Accordingly, we encourage you to read carefully this entire proxy statement, including the attached annexes and the other documents to which we have referred to you. You may obtain the information incorporated by reference in this proxy statement without charge by following the instructions set forth in the section entitled “Where You Can Find More Information” beginning on page 147 of this proxy statement. We have included page references in this summary to direct you to a more complete description of the topics presented below.

In this proxy statement, the terms “Calpine,” the “company,” “we,” “us” and “our” refer to Calpine Corporation and, where appropriate, its subsidiaries, and the term the “Calpine Board” refers to the board of directors of Calpine Corporation. We refer to Volt Parent, LP as “Parent” and Volt Merger Sub, Inc. as “Merger Sub.” All references to the “merger” refer to the merger of Merger Sub with and into Calpine, with Calpine continuing as the surviving corporation and becoming a subsidiary of Parent, and all references to the “merger agreement” refer to the Agreement and Plan of Merger, dated as of August 17, 2017, as it may be amended from time to time, by and among Calpine, Parent and Merger Sub, a copy of which is included as Annex A to this proxy statement. Calpine, following the consummation of the merger, is sometimes referred to as the “surviving corporation.”

Parties to the Merger (Page 30)

Calpine Corporation

717 Texas Avenue, Suite 1000

Houston, Texas 77002

Telephone: (713) 830-2000

www.calpine.com

Calpine Corporation, a Delaware corporation, is a premier power generation company with 80 power plants primarily in the U.S. We sell power and related services that we produce to our wholesale customers who include commercial and industrial end-users, state and regional wholesale market operators and our retail affiliates who serve retail customers. We purchase primarily natural gas and some fuel oil as fuel for our power plants and engage in related natural gas transportation and storage transactions.

Volt Parent, LP

c/o Energy Capital Partners III, LLC

51 John F. Kennedy Parkway, Suite 200

Short Hills, New Jersey 07078

Telephone: (973) 671-6100

Volt Parent, LP, or Parent, is a Delaware limited partnership that was formed by Energy Capital Partners III, LLC, which we refer to as “Energy Capital Partners,” on August 10, 2017, on behalf of itself, its affiliated funds and a consortium of co-investors, which we refer to as the “consortium co-investors,” and which consortium includes Access Industries, Inc., which we refer to as “Access,” and the Canada Pension Plan Investment Board, which we refer to as “CPPIB,” for the purpose of entering into the merger agreement and completing the

 



 

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transactions contemplated thereby and related financing transactions. Parent has not carried on any activities on or prior to the date of this proxy statement other than those related to its formation and as contemplated by or related to the merger agreement and the related financing transactions. Parent is currently controlled by Energy Capital Partners and its affiliates. Upon consummation of the merger, Calpine will become a subsidiary of Parent.

Parent and Merger Sub are affiliates of Energy Capital Partners and its affiliated funds. Energy Capital Partners, together with its affiliated funds, is a private equity firm focused on investing primarily in North America’s energy infrastructure. Energy Capital Partners focuses on acquiring and developing interests in high quality assets, contracts and businesses primarily in the following sectors: power generation, midstream oil and gas, electric transmission, energy equipment and services, environmental infrastructure and other energy related assets.

Volt Merger Sub, Inc.

c/o Energy Capital Partners III, LLC

51 John F. Kennedy Parkway, Suite 200

Short Hills, New Jersey 07078

Telephone: (973) 671-6100

Volt Merger Sub, Inc., or Merger Sub, is a Delaware corporation and wholly-owned subsidiary of Parent that was formed by Energy Capital Partners on August 10, 2017, on behalf of itself, its affiliated funds and the consortium co-investors, for the purpose of entering into the merger agreement and completing the transactions contemplated thereby and related financing transactions. Merger Sub has not carried on any activities on or prior to the date of this proxy statement other than those related to its formation and as contemplated by or related to the merger agreement and the related financing transactions. Upon consummation of the merger, Merger Sub will merge with and into Calpine, the separate corporate existence of Merger Sub will cease and Calpine will continue as the surviving corporation and as a subsidiary of Parent.

The Special Meeting (Page 32)

Time, Place and Purpose of the Special Meeting (Page 32)

The special meeting will be held on December 15, 2017, at 8:00 a.m., Central Time, at 717 Texas Avenue, Suite 1000, Houston, Texas 77002.

At the special meeting, holders as of the record date of Calpine common stock will be asked to adopt the merger agreement and to approve adjournment of the special meeting, if necessary or advisable, to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the merger agreement. In addition, holders of Calpine common stock will be asked to approve, on an advisory (non-binding) basis, the compensation disclosed in this proxy statement that may be payable to Calpine’s named executive officers in connection with the consummation of the merger, which we refer to as the “‘golden parachute’ compensation.”

Record Date and Quorum (Page 32)

You are entitled to receive notice of, and to vote at, the special meeting if you were a record owner of shares of Calpine common stock at the close of business on November 9, 2017, which the Calpine Board has fixed as the record date for the special meeting and which we refer to as the “record date.” You will have one vote for each share of Calpine common stock that you owned at the close of business on the record date. As of the close of business on the record date, there were 360,568,456 shares of Calpine common stock outstanding and entitled to vote at the special meeting. A majority of the votes represented by shares of Calpine common stock issued and outstanding at the close of business on the record date and entitled to be cast at the special meeting, present in

 



 

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person or represented by proxy, will constitute a quorum for purposes of the special meeting. Shares of Calpine common stock held by stockholders who abstain from voting on any proposal will be included as shares present at the special meeting for purposes of determining whether a quorum exists.

Vote Required (Page 33)

In order for the merger agreement to be adopted, holders of a majority of the outstanding shares of Calpine common stock entitled to vote on the proposal to adopt the merger agreement at the special meeting must cast the votes represented by such shares of Calpine common stock “FOR” such proposal. If you fail to submit a proxy or to vote in person at the special meeting, or if you abstain or do not provide your bank, brokerage firm or other nominee with voting instructions, as applicable, this will have the same effect as voting “AGAINST” the proposal to adopt the merger agreement.

In order for the proposal to adjourn the special meeting, if necessary or advisable, to solicit additional proxies to be approved, whether or not a quorum is present, holders of a majority of the outstanding shares of Calpine common stock present in person or represented by proxy and entitled to vote on such proposal at the special meeting must cast the votes represented by such shares of Calpine common stock “FOR” such proposal. If you attend the meeting or are represented by proxy and, in either case, abstain from voting, that abstention will have the same effect as voting “AGAINST” the proposal to adjourn the special meeting, if necessary or advisable, to solicit additional proxies. The failure to instruct your bank, brokerage firm or other nominee on how to vote your shares of Calpine common stock will have no effect on the outcome of the vote to approve the proposal to adjourn the special meeting, if necessary or advisable, to solicit additional proxies.

In order for the proposal to approve, on an advisory (non-binding) basis, the “golden parachute” compensation to be approved, provided that a quorum is present, holders of a majority of the outstanding shares of Calpine common stock present in person or represented by proxy and entitled to vote on such proposal at the special meeting must cast the votes represented by such shares of Calpine common stock “FOR” such proposal. If you attend the meeting or are represented by proxy and, in either case, abstain from voting, that abstention will have the same effect as voting “AGAINST” the proposal to approve, on an advisory (non-binding) basis, the “golden parachute” compensation. The failure to instruct your bank, brokerage firm or other nominee on how to vote your shares of Calpine common stock will have no effect on the outcome of the proposal to approve, on an advisory (non-binding) basis, the “golden parachute” compensation.

As of the close of business on the record date, the directors and executive officers of Calpine beneficially owned and were entitled to vote, in the aggregate, 1,801,468 shares of Calpine common stock, including company restricted shares (as defined below), but excluding shares of Calpine common stock issuable upon the exercise of company options (as defined below) and shares of Calpine common stock that are subject to company restricted stock units (as defined below) and company performance stock units (as defined below) as of such date, representing approximately 0.5% of the outstanding shares of Calpine common stock at the close of business on the record date.

The directors and executive officers have informed Calpine that they currently intend to vote all of their shares of Calpine common stock (other than shares of Calpine common stock as to which such holder may not have discretionary authority) “FOR” the proposal to adopt the merger agreement, “FOR” the proposal to adjourn the special meeting, if necessary or advisable, to solicit additional proxies and “FOR” the proposal to approve, on an advisory (non-binding) basis, the “golden parachute” compensation.

Proxies and Revocation (Page 34)

Any stockholder of record entitled to vote at the special meeting may submit a proxy by telephone, over the Internet or by returning the enclosed proxy card in the accompanying prepaid reply envelope, or may vote in

 



 

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person by appearing at the special meeting. If your shares of Calpine common stock are held in “street name” through a bank, brokerage firm or other nominee, you should instruct your bank, brokerage firm or other nominee on how to vote your shares of Calpine common stock in accordance with the procedures provided by your bank, brokerage firm or other nominee. Each of the proposal to adopt the merger agreement, the proposal to adjourn the special meeting, if necessary or advisable, to solicit additional proxies, and the proposal to approve, on an advisory (non-binding) basis, the “golden parachute” compensation is a non-routine proposal on which banks, brokerage firms and other nominees do not have discretion to vote any uninstructed shares.

You may change your vote or revoke your proxy at any time before it is voted at the special meeting by:

 

    executing and returning a later-dated proxy at any time before a vote is taken at the special meeting;

 

    voting by telephone or over the Internet no later than 11:59 p.m., Eastern Time, on December 14, 2017;

 

    delivering a written notice of revocation prior to or during the special meeting; or

 

    attending the special meeting and voting in person.

If you hold your shares of Calpine common stock in “street name,” you may submit new voting instructions by contacting your bank, brokerage firm or other nominee. You may also vote in person at the special meeting if you obtain a legal proxy or broker’s proxy card from your bank, brokerage firm or other nominee.

The Merger (Page 39)

The rights and obligations of the parties to the merger agreement are governed by the specific terms and conditions of the merger agreement and not by any summary or other information in this proxy statement. Therefore, the information in this proxy statement regarding the merger agreement and the merger is qualified in its entirety by reference to the merger agreement, a copy of which is attached as Annex A to this proxy statement and incorporated herein by reference. We encourage you to read the merger agreement carefully and in its entirety because it is the principal document that governs the merger.

Structure of the Merger (Page 39)

If the merger is consummated, then at the effective time of the merger upon filing of the certificate of merger with the Secretary of State of the State of Delaware (or at such later date and time as Calpine and Parent may agree and specify in the certificate of merger), which we refer to as the “effective time,” Merger Sub will merge with and into Calpine, the separate corporate existence of Merger Sub will cease and Calpine will continue as the surviving corporation and as a subsidiary of Parent. As a result of the merger, Calpine will cease to be a publicly traded company and you will not own any shares of capital stock of the surviving corporation.

Merger Consideration (Page 39)

At the effective time, our stockholders will have the right to receive $15.25 in cash, without interest and less any applicable withholding taxes, which we refer to as the “merger consideration,” for each share of Calpine common stock that they own immediately prior to the effective time (other than shares (a) held directly by Parent or Merger Sub or held by us as treasury stock, (b) that are company restricted shares, (c) held by any subsidiary of either Calpine or Parent (other than Merger Sub), (d) held by Volt Energy Holdings, LP, an affiliate of Energy Capital Partners, which we refer to as “Volt Energy,” and (e) held by stockholders who are entitled to and have properly demanded appraisal rights in accordance with Delaware law, which we collectively refer to as “excluded shares”).

 



 

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Treatment of Equity Awards (Page 79)

The merger agreement provides that outstanding equity-based awards under Calpine’s equity plans will be treated as set forth below.

Treatment of Stock Options. At the effective time, each outstanding option to purchase shares of Calpine common stock granted pursuant to a Calpine equity plan, which we refer to as a “company option,” whether vested or unvested, will be fully vested and canceled and converted into the right to receive an amount in cash, without interest and less any applicable withholding taxes, determined by multiplying the excess, if any, of the merger consideration over the applicable exercise price per share of such company option by the number of shares of Calpine common stock subject to such company option.

Treatment of Restricted Shares. At the effective time, each outstanding share of Calpine common stock subject to vesting or other lapse restrictions granted by Calpine, which we refer to as a “company restricted share,” will be fully vested and will be canceled and converted into the right to receive an amount in cash, without interest and less any applicable withholding taxes, equal to the merger consideration.

Treatment of Restricted Stock Units. At the effective time, each outstanding restricted stock unit issued by Calpine that vests solely on the basis of time, pursuant to which the holder has a right to receive shares of Calpine common stock or cash after the vesting or lapse of restrictions applicable to such restricted stock unit, which we refer to as a “company restricted stock unit,” whether vested or unvested, will be fully vested and canceled and converted into the right to receive an amount in cash, without interest and less any applicable withholding taxes, determined by multiplying the merger consideration by the number of shares of Calpine common stock subject to such company restricted stock unit.

Treatment of Performance Stock Units. At the effective time, each outstanding performance stock unit issued by Calpine that vests on the basis of time and the achievement of performance targets, pursuant to which the holder has a right to receive shares of Calpine common stock or cash after the vesting or lapse of restrictions applicable to such performance stock unit, which we refer to as a “company performance stock unit,” whether vested or unvested, will be fully vested and canceled and converted into the right to receive an amount in cash, without interest and less any applicable withholding taxes, determined by multiplying the merger consideration by the number of shares of Calpine common stock subject to such company performance stock unit. The number of shares subject to each company performance stock unit will be determined by assuming that performance for the full or cumulative performance period is the higher of the target and actual performance (as determined by Calpine based upon performance up until the closing of the merger).

Expected Timing of the Merger (Page 78)

We currently expect to consummate the merger during the first quarter of calendar year 2018. Since the merger is subject to various regulatory clearances and approvals and other conditions, it is possible that factors outside the control of Calpine or Parent could result in the merger being consummated at a later time, or not at all. There may be a substantial amount of time between the special meeting and the consummation of the merger. We expect to consummate the merger promptly following the receipt of all required approvals and the satisfaction or waiver of the other conditions precedent as described in the merger agreement.

Recommendation of the Calpine Board; Reasons for the Merger (Page 51)

After careful consideration, the Calpine Board, among other things:

 

    unanimously determined that the terms of the merger agreement and the transactions contemplated by the merger agreement, including the merger, are advisable and fair to, and in the best interests of, Calpine and its stockholders;

 



 

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    unanimously approved and declared advisable the terms of the merger agreement and the transactions contemplated by the merger agreement, including the merger;

 

    directed that the merger agreement be submitted to Calpine’s stockholders for adoption;

 

    resolved to recommend and recommended to Calpine’s stockholders that they vote in favor of adoption of the merger agreement and the transactions contemplated thereby, including the merger; and

 

    approved the merger pursuant to the merger agreement for purposes of (a) Section 203 of the General Corporation Law of the State of Delaware, which we refer to as the “DGCL,” and (b) any and all state takeover laws and any other similar laws of any jurisdiction that may be deemed applicable to Calpine, Parent, Merger Sub, the merger agreement, the merger or any other transaction contemplated by the merger agreement, including any and all “moratorium,” “control share acquisition,” “fair price,” “interested stockholder,” “affiliate transaction,” “business combination” or other antitakeover laws.

For a discussion of certain factors considered by the Calpine Board in reaching its determinations, see the section entitled “The Merger (Proposal 1)—Recommendation of the Calpine Board; Reasons for the Merger” beginning on page 51 of this proxy statement.

In considering the recommendation of the Calpine Board with respect to the proposal to adopt the merger agreement, you should be aware that certain of our directors and executive officers may be deemed to have interests in the transactions contemplated by the merger agreement that are different from, or in addition to, those of Calpine’s stockholders generally. See the section entitled “The Merger (Proposal 1)—Interests of Certain Persons in the Merger” beginning on page 79 of this proxy statement and the section entitled “Advisory Vote on Golden Parachute Compensation (Proposal 3)” beginning on page 129 of this proxy statement. The Calpine Board was aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement and the merger, and in recommending that the merger agreement be adopted by Calpine’s stockholders.

The Calpine Board unanimously recommends that you vote “FOR” the proposal to adopt the merger agreement and “FOR” the proposal to adjourn the special meeting, if necessary or advisable, to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the merger agreement. In addition, the Calpine Board unanimously recommends that you vote “FOR” the proposal to approve, on an advisory (non-binding) basis, the “golden parachute” compensation that may be payable to Calpine’s named executive officers in connection with the consummation of the merger.

Opinion of Calpine’s Financial Advisor (Page 57)

Lazard Frères & Co. LLC, which we refer to as “Lazard,” was retained by Calpine to act as its financial advisor in connection with the merger. On August 17, 2017, Lazard rendered its written opinion, consistent with its oral opinion rendered on the same date, to the Calpine Board that, as of such date, and based upon and subject to the assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of review undertaken by Lazard as set forth in its written opinion, the merger consideration to be paid to holders of shares of Calpine common stock (other than holders of excluded shares) in the merger was fair, from a financial point of view, to such holders.

The full text of Lazard’s written opinion to the Calpine Board, dated August 17, 2017, which sets forth the assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of review undertaken by Lazard in connection with its opinion, is attached to this proxy statement as Annex B and is incorporated by reference herein in its entirety. The foregoing summary of Lazard’s opinion is qualified in its entirety by reference to the full text of the opinion. You are encouraged to read Lazard’s opinion, this section and

 



 

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the summary of Lazard’s opinion, as further described in the section entitled “The Merger (Proposal 1)—Opinion of Calpines Financial Advisor” beginning on page 57 of this proxy statement, in their entirety. Lazard’s engagement and its opinion were for the benefit of the Calpine Board (in its capacity as such), and Lazard’s opinion was rendered to the Calpine Board in connection with its evaluation of the merger and addressed only the fairness as of the date of the opinion, from a financial point of view, to holders of shares of Calpine common stock (other than holders of excluded shares) of the merger consideration to be paid to such holders in the merger. Lazard’s opinion was not intended to, and does not, constitute a recommendation to any stockholder as to how such stockholder should vote or act with respect to the merger or any matter relating thereto.

Financing of the Merger (Page 73)

We anticipate that total funds of approximately $5.6 billion will be needed to consummate the merger (including the funds required to pay to Calpine’s stockholders and the holders of other equity-based interests the amounts due to them under the merger agreement) and to pay related fees and expenses. Parent has obtained equity financing commitments, and Volt Energy has obtained a debt financing commitment, for the transactions contemplated by the merger agreement, the aggregate proceeds of which will be used to fund the consummation of the merger and the other transactions contemplated by the merger agreement and any fees and expenses incurred in connection therewith.

In connection with the merger:

 

    Parent has entered into an equity commitment letter, dated as of August 17, 2017, which we refer to as the “equity commitment letter,” with Volt Energy, Energy Capital Partners III, LP, ECP III-A (as defined in the section entitled “—Limited Guarantee” beginning on page 8 of this proxy statement), Energy Capital Partners III-B, LP, Energy Capital Partners III-C, LP and Energy Capital Partners III-D, LP, which we refer to collectively as the “Energy Capital Funds,” for an aggregate equity commitment of up to approximately $1.683 billion (excluding the implied value of 17,500,000 shares of Calpine common stock owned by Volt Energy);

 

    Volt Parent GP, LLC, which we refer to as “Parent GP,” as general partner of Parent, has entered into subscription agreements, each dated as of August 17, 2017, which we refer to collectively as the “subscription agreements,” with certain limited partners of Parent, pursuant to which the consortium co-investors have agreed to subscribe for limited partnership interests of Parent for an aggregate amount equal to approximately $2.554 billion; and

 

    Volt Energy has obtained a debt commitment letter, dated August 17, 2017, which we refer to as the “bridge commitment letter,” from Barclays Bank PLC, which we refer to as “Barclays,” pursuant to which Barclays has committed to provide Volt Energy with up to $950 million under a 364-day senior secured bridge credit facility, which we refer to as the “bridge facility.” If funded, the bridge facility would be secured by a security interest in substantially all assets of Volt Energy. Since August 17, 2017, Volt Energy has transferred approximately $68 million of its equity commitment in Parent to a new consortium co-investor and is in discussions to transfer additional amounts to other third parties who may join the consortium co-investors. Such transfers reduce Barclays’ commitment under the bridge facility.

The consummation of the merger is not conditioned upon Parent obtaining the proceeds of any financing (although the funding of the equity and debt financings is subject to the satisfaction of the conditions set forth in the applicable agreement under which such financing will be provided). For further information, see the section entitled “The Merger (Proposal 1)—Financing of the Merger” beginning on page 73 of this proxy statement.

In addition, in connection with the merger, Calpine and Parent have agreed to the terms of amendments with the requisite percentage of the lenders under that certain Credit Agreement, dated as of December 10, 2010, by

 



 

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and among Calpine, the lenders party thereto from time to time, The Bank of Tokyo-Mitsubishi UFJ, Ltd., as administrative agent, and MUFG Union Bank, N.A., as collateral agent, which we refer to as the “existing revolving credit agreement,” to, among other things (a) provide for an exception to the application of the “Change of Control” definition as it would otherwise apply to the consummation of the transactions contemplated by the merger agreement, (b) reduce the aggregate commitments thereunder and (c) extend the maturity date of the loans and commitments thereunder. The amendments will become effective upon consummation of the merger contemplated by the merger agreement.

Limited Guarantee (Page 77)

As contemplated by the merger agreement, Calpine and Energy Capital Partners III-A, LP, which we refer to as “ECP III-A” or the “guarantor,” have entered into a Limited Guarantee, dated as of August 17, 2017, which we refer to as the “limited guarantee,” pursuant to which ECP III-A has agreed to guarantee to Calpine certain of Parent’s payment obligations under the merger agreement, including any termination fee payable by Parent to Calpine in connection with the termination of the merger agreement under specified circumstances, as further described in the section entitled “The Merger Agreement—Terms of the Merger Agreement—Termination Fee beginning on page 125 of this proxy statement, subject to an aggregate cap equal to $335 million.

Interests of Certain Persons in the Merger (Page 79)

Certain of Calpine’s directors and executive officers may be deemed to have interests in the transactions contemplated by the merger agreement that are different from, or in addition to, those of Calpine’s stockholders generally. These interests may present these individuals with certain potential conflicts of interest. In evaluating and negotiating the merger agreement and the merger, and in recommending that the merger agreement be adopted by Calpine’s stockholders, the Calpine Board was aware of these interests and considered them among other matters that are described in the section entitled “The Merger (Proposal 1)—Recommendation of the Calpine Board; Reasons for the Merger” beginning on page 51 of this proxy statement.

For further information, see the section entitled “The Merger (Proposal 1)—Interests of Certain Persons in the Merger” beginning on page 79 of this proxy statement and the section entitled “Advisory Vote on Golden Parachute Compensation (Proposal 3)” beginning on page 129 of this proxy statement.

Material United States Federal Income Tax Consequences (Page 90)

The exchange of shares of Calpine common stock for cash pursuant to the merger will generally be a taxable transaction to United States Holders for United States federal income tax purposes. In general, a United States Holder whose shares of Calpine common stock are converted into the right to receive cash in the merger will recognize gain or loss for United States federal income tax purposes in an amount equal to the difference, if any, between the amount of cash received with respect to such shares of Calpine common stock and such United States Holder’s adjusted tax basis in such shares. Backup withholding may also apply to the cash payments made pursuant to the merger unless the United States Holder or other payee provides a valid taxpayer identification number and complies with certain certification procedures (generally, by providing a properly completed and executed U.S. Internal Revenue Service, which we refer to as the “IRS,” Form W-9) or otherwise establishes an exemption from backup withholding. Payments made to a non-United States Holder with respect to shares of Calpine common stock exchanged for cash pursuant to the merger will generally be exempt from United States federal income tax, subject to certain exceptions discussed below (see the section entitled “The Merger (Proposal 1)—Material United States Federal Income Tax Consequences” beginning on page 90 of this proxy statement). A non-United States Holder may, however, be subject to backup withholding with respect to the cash payments made pursuant to the merger, unless the non-United States Holder certifies on an appropriate IRS Form W-8 that such non-United States Holder is not a United States person or otherwise establishes an exemption from backup

 



 

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withholding. You should read the section entitled “The Merger (Proposal 1)—Material United States Federal Income Tax Consequences” beginning on page 90 of this proxy statement for definitions of “United States Holder” and “non-United States Holder,” and for a more detailed discussion of the United States federal income tax consequences of the merger. You should also consult your tax advisor with respect to the specific tax consequences to you in connection with the merger in light of your own particular circumstances, including federal estate, gift and other non-income tax consequences, and tax consequences under state, local or foreign tax laws or tax treaties.

Regulatory Approvals (Page 94)

To consummate the merger, Calpine and Parent must obtain certain consents, approvals, waivers, licenses, permits, franchises, certificates, registrations, variances, exemptions and authorizations, which we collectively refer to as “consents,” from, or make filings with, a number of United States federal and state public utility, antitrust and other regulatory authorities. The material United States federal and state approvals, consents and filings include the following:

 

    the expiration or early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, which we refer to as the “HSR Act,” and the related rules and regulations, following the filing of premerger notification and report forms with the Federal Trade Commission, which we refer to as the “FTC,” and the Antitrust Division of the Department of Justice, which we refer to as the “Antitrust Division,” which waiting period was terminated on September 27, 2017;

 

    approval from the Federal Energy Regulatory Commission, which we refer to as the “FERC,” under the Federal Power Act;

 

    approval, or a declaratory ruling that approval is not required, from the New York State Public Service Commission; and

 

    approval from the Public Utility Commission of Texas.

Although we believe that we will receive the required consents and approvals to consummate the merger, we cannot give any assurance as to the timing of these consents and approvals or as to Calpine’s and Parent’s ultimate ability to obtain such consents or approvals (or any additional consents or approvals which may otherwise become necessary). We also cannot ensure that we will obtain such consents or approvals on terms and subject to conditions satisfactory to Calpine and Parent. At any time before or after the effective time, the Antitrust Division or the FTC could take action under the antitrust laws, including seeking to enjoin the consummation of the merger, conditionally approve the merger upon the divestiture of assets, subject the consummation of the merger to regulatory conditions or seek other remedies. In addition, state attorneys general and other regulators could take action under the antitrust or other laws as they deem necessary or desirable in the public interest, including, without limitation, seeking to enjoin the consummation of the merger or permitting consummation subject to regulatory conditions. Private parties may also bring legal action under the antitrust laws under certain circumstances. There can be no assurance that a challenge to the merger on antitrust or other regulatory grounds will not be made or, if such a challenge is made, what the result of such challenge will be.

Litigation Relating to the Merger (Page 96)

Purported stockholders of Calpine have filed to date four putative class action complaints challenging the merger in the United States District Court for the Southern District of Texas, Houston Division, which actions are captioned Hickson v. Calpine Corporation, et al., Civil Action No. 17-cv-3252, filed on October 25, 2017, Scarantino v. Calpine Corporation, et al., Civil Action No. 17-cv-03256, filed on October 26, 2017, Langston v. Calpine Corporation, et al., Civil Action No. 17-cv-03316, filed on October 31, 2017, and Stoner v. Calpine

 



 

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Corporation, et. al., Civil Action No. 17-cv-03317, filed on October 31, 2017, which we refer to collectively as the “complaints” and the related lawsuits as the “actions.” Calpine and the individual members of the Calpine Board are named as defendants in each of the actions. The Scarantino complaint also names as defendants Energy Capital Partners, Parent and Merger Sub and the Stoner complaint names as a defendant Energy Capital Partners. The complaints generally allege certain violations of the Securities Exchange Act of 1934, as amended, which we refer to as the “Exchange Act,” and Rule 14a-9 under the Exchange Act and seek, among other things, class action certification, injunctive relief prohibiting the stockholder vote to approve the merger, unspecified compensatory damages and attorneys’ fees. Calpine and the Calpine Board believe that the actions lack merit and intend to vigorously defend against these actions.

The Merger Agreement (Page 97)

A copy of the merger agreement is attached as Annex A to this proxy statement. We encourage you to read the entire merger agreement carefully because it is the principal document governing the merger. For further information regarding the merger agreement, see the section entitled “The Merger Agreement” beginning on page 97 of this proxy statement.

Go-Shop Period; Solicitation of Alternative Transaction Proposals (Page 108)

During the period, which we refer to as the “go-shop period,” from August 17, 2017 through 12:01 a.m. (New York City time) on October 2, 2017, which we refer to as the “no-shop period start date,” Calpine, its subsidiaries and their respective equityholders, managers, directors, officers, employees, financial advisors, legal counsel, financing sources, accountants or other advisors, agents or authorized representatives, whom we collectively refer to as “representatives,” had the right to, directly or indirectly, solicit, initiate, facilitate or encourage any alternative transaction proposal (as defined in the section entitled “The Merger Agreement—Terms of the Merger Agreement—Go-Shop Period; Solicitation of Alternative Transaction Proposals” beginning on page 108 of this proxy statement) and participate in discussions or negotiations with respect to any alternative transaction proposal or otherwise cooperate in connection with or assist or participate in or facilitate any such discussions or negotiations or any effort or attempt to make any alternative transaction proposal. During the go-shop period, Calpine, its subsidiaries and their respective representatives were prohibited from taking any of the foregoing actions with respect to any person who is, to Calpine’s knowledge, one of the persons identified by Parent to Calpine as of August 17, 2017 in accordance with the terms of the merger agreement, each of which we refer to as an “identified sponsor investor.”

Notwithstanding the occurrence of the no-shop period start date, Calpine and its representatives may continue to engage in the activities described above with respect to any exempted person (as defined in the section entitled “The Merger Agreement—Terms of the Merger Agreement—Go-Shop Period; Solicitation of Alternative Transaction Proposals” beginning on page 108 of this proxy statement), including with respect to any amended proposal submitted by any exempted person, so long as such person continues to be an exempted person, until the earlier of 12:01 a.m. (New York City time) on December 1, 2017, which we refer to as the “cut off time,” and the time that such exempted person ceases to be an exempted person (provided that Calpine, each of Calpine’s subsidiaries and each of its and their respective representatives comply in all material respects with the requirements of the covenants relating to acquisition proposals contained in the merger agreement).

On the no-shop period start date, Calpine was obligated to notify Parent of the number and identity of the exempted persons from whom Calpine or any of its representatives received an alternative transaction proposal or any person or “group” (within the meaning of Section 13(d)(3) of the Exchange Act who inquired about or requested information in connection with its consideration of any alternative transaction proposal during the go-shop period and the material terms and conditions of any such alternative transaction proposal received (including any changes thereto). As of the no-shop period start date, there were no exempted persons.

 



 

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From and after the no-shop period start date, Calpine has agreed to, and to cause each of its subsidiaries to, and to direct and use commercially reasonable efforts to cause its and their representatives to, among other things:

 

    immediately cease any solicitation, facilitation, encouragement, discussion, negotiation or cooperation with respect to any alternative transaction proposal; and

 

    immediately instruct each person (other than Parent, Parent’s affiliates, the identified sponsor investors (as defined in the section entitled “The Merger Agreement—Terms of the Merger Agreement—Go-Shop Period; Solicitation of Alternative Transaction Proposals” beginning on page 108 of this proxy statement) and its and their respective representatives and other than as expressly directed in writing by Parent) that has previously executed a confidentiality agreement in connection with such person’s consideration of an alternative transaction proposal to promptly return to Calpine or destroy any non-public information previously furnished to such person or to such person’s representatives by or on behalf of Calpine or any of its subsidiaries and immediately terminate the access of each such person and its representatives to any electronic data room maintained by or on behalf of Calpine or any of its subsidiaries.

From the no-shop period start date until the effective time or, if earlier, the termination of the merger agreement in accordance with its terms, Calpine has agreed not to, and to cause each of its subsidiaries not to, and to direct and use commercially reasonable efforts to cause its and their representatives not to, directly or indirectly, among other things:

 

    solicit, initiate, knowingly facilitate or knowingly encourage any alternative transaction proposal; or

 

    other than with Parent, Merger Sub or their respective representatives and other than to inform any person of the covenants relating to acquisition proposals contained in the merger agreement, (a) enter into, continue or otherwise participate in any discussions or negotiations regarding, or furnish to any person any non-public information in connection with, any alternative transaction proposal, or (b) enter into any alternative transaction agreement (as defined in the section entitled “The Merger Agreement—Terms of the Merger Agreement—Go-Shop Period; Solicitation of Alternative Transaction Proposals” beginning on page 108 of this proxy statement).

Notwithstanding the foregoing, or any other provisions or covenants relating to acquisition proposals contained in the merger agreement to the contrary, if, at any time after the no-shop period start date and prior to the adoption of the merger agreement by Calpine’s stockholders, Calpine or any of its subsidiaries receives an alternative transaction proposal that did not result from a material breach of the covenants relating to acquisition proposals contained in the merger agreement, (a) Calpine and the Calpine Board may (directly or through their respective representatives) contact such person and such person’s advisors for the purpose of clarifying the proposal and any material terms and conditions and likelihood of consummation thereof, so as to determine whether such proposal constitutes, or would reasonably be expected to lead to, a superior proposal (as defined in the section entitled “The Merger Agreement—Terms of the Merger Agreement—Go-Shop Period; Solicitation of Alternative Transaction Proposals” beginning on page 108 of this proxy statement) and (b) if the Calpine Board determines in good faith, after consultation with its legal counsel and financial advisors and based on information then available, that such alternative transaction proposal constitutes, or would reasonably be expected to lead to, a superior proposal, the Calpine Board may furnish information with respect to Calpine and Calpine’s subsidiaries to the person making such alternative transaction proposal (and such person’s representatives) pursuant to an executed acceptable confidentiality agreement (as defined in the section entitled “The Merger Agreement—Terms of the Merger Agreement—Go-Shop Period; Solicitation of Alternative Transaction Proposals” beginning on page 108 of this proxy statement) (provided that a copy of all such information not previously provided to Parent or its representatives is provided to Parent as promptly as reasonably practicable (but in no event later than 24 hours) after such information has been provided to such person or such person’s representatives, as applicable) and participate in discussions or negotiations with the person making such alternative transaction proposal (and such person’s representatives) regarding such alternative transaction proposal.

 



 

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Changes in the Recommendation of the Calpine Board (Page 111)

Prior to the adoption of the merger agreement by Calpine’s stockholders, the Calpine Board may, in response to a superior proposal that did not result from a breach of Calpine’s obligations under the covenants relating to acquisition proposals contained in the merger agreement or an intervening event (as defined in the section entitled “The Merger Agreement—Terms of the Merger Agreement—Changes in the Recommendation of the Calpine Board” beginning on page 111 of this proxy statement), make an adverse recommendation change (as defined in the section entitled “The Merger Agreement—Terms of the Merger Agreement—Changes in the Recommendation of the Calpine Board” beginning on page 111 of this proxy statement) if the Calpine Board determines in good faith, after consultation with its legal counsel and financial advisors, that the failure to take such action would be inconsistent with the directors’ fiduciary duties to Calpine’s stockholders under applicable law.

Without limiting the foregoing, in response to an alternative transaction proposal that the Calpine Board determines in good faith, after consultation with its legal counsel and financial advisors, constitutes a superior proposal, Calpine may terminate the merger agreement and, concurrently with such termination, may enter into an alternative transaction agreement with respect to such superior proposal, but only if Calpine (a) complies with certain obligations (as described in the section entitled “The Merger Agreement—Terms of the Merger Agreement—Changes in the Recommendation of the Calpine Board” beginning on page 111 of this proxy statement) and (b) pays, or causes to be paid, to Parent the applicable company termination fee (as described in the section entitled “The Merger Agreement—Terms of the Merger Agreement—Termination Fee” beginning on page 125 of this proxy statement) prior to or concurrently with such termination.

Conditions to the Consummation of the Merger (Page 122)

As more fully described in the merger agreement and in the section entitled “The Merger Agreement—Terms of the Merger Agreement—Merger Closing Conditions” beginning on page 122 of this proxy statement, the respective obligations of Calpine, Parent and Merger Sub to consummate the merger are subject to the satisfaction or waiver (to the extent permitted by applicable law) in writing of certain conditions (including, among other conditions, the adoption of the merger agreement by Calpine’s stockholders, receipt of certain governmental approvals, including the expiration or early termination of any waiting period (and any extension thereof) under the HSR Act and receipt of approval from the FERC), the accuracy of the representations and warranties of the parties and compliance by the parties with their respective obligations under the merger agreement. Consummation of the merger will also require the satisfaction or waiver of certain other customary closing conditions.

Termination of the Merger Agreement (Page 123)

Parent and Calpine may, by mutual written consent, terminate the merger agreement, and abandon the merger, at any time prior to the effective time, whether before or after adoption of the merger agreement by Calpine’s stockholders (except as otherwise expressly noted in the merger agreement).

Either Parent or Calpine may terminate the merger agreement, and abandon the merger, at any time prior to the effective time, whether before or after adoption of the merger agreement by Calpine’s stockholders (except as otherwise expressly noted in the merger agreement) as follows:

 

   

if the merger has not been consummated on or before August 17, 2018, which we refer to as the “outside date,” which date may be extended by either Calpine or Parent from time to time by written notice to the other party up to a date that is not beyond November 17, 2018, if all conditions precedent to the merger, other than the governmental approvals condition (as defined in the section entitled “The Merger Agreement—Terms of the Merger Agreement—Merger Closing Conditions” beginning on

 



 

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page 122 of this proxy statement), have been satisfied, are capable of being satisfied at such time or would be capable of being satisfied at such time but for the fact that the governmental approvals condition is not satisfied, which we refer to as an “outside date termination”;

 

    if the merger agreement has not been adopted by Calpine’s stockholders at the special meeting or at any adjournment or postponement thereof, which we refer to as a “stockholder vote termination”; or

 

    if any final and non-appealable restraint (as defined in the section entitled “The Merger Agreement—Terms of the Merger Agreement—Merger Closing Conditions” beginning on page 122 of this proxy statement) is in effect permanently restraining, enjoining or otherwise prohibiting or making illegal the merger, if the party seeking to terminate the merger agreement under this circumstance has complied with its obligations under covenants relating to the parties’ efforts to avoid the entry of, or to effect the dissolution of, any such restraint.

However, no party will have the right to terminate the merger agreement as described in the first bullet point above (a) if such party’s failure to fulfill any obligation under the merger agreement was the primary cause of the failure of the effective time to occur on or before the outside date or (b) during the pendency of a legal proceeding by any party for specific performance in accordance with the terms of the merger agreement, and no party will have the right to terminate the merger agreement as described in the third bullet point above if the issuance of such final and non-appealable restraint was primarily attributable to the failure of such party, and in the case of Parent, including the failure of Merger Sub, to perform any of its obligations under the merger agreement.

Parent may unilaterally terminate the merger agreement, and abandon the merger, at any time prior to the effective time, whether before or after adoption of the merger agreement by Calpine’s stockholders (except as otherwise expressly noted in the merger agreement) as follows:

 

    prior to adoption of the merger agreement by Calpine’s stockholders if there has occurred an adverse recommendation change, which we refer to as an “adverse recommendation change termination”;

 

    if prior to the date on which the merger closes, such date on which the merger closes we sometimes refer to as the “closing date,” there has been a breach or inaccuracy of any representation or warranty contained in the merger agreement on the part of Calpine or Calpine has failed to perform or comply with any of its covenants or agreements contained in the merger agreement, which breach, inaccuracy or failure to perform or comply (a) would give rise to the failure of certain closing conditions specifically set forth in the merger agreement and (b) is incapable of being cured or, if curable, is not cured by Calpine on or before the earlier of the outside date and the date that is 45 days following the receipt by Calpine of written notice from Parent of such breach, inaccuracy or failure to perform or comply, unless Parent or Merger Sub is then in material breach of any representation, warranty, covenant or agreement contained in the merger agreement, which we refer to as a “company breach termination”; or

 

    if the rating on any of Calpine’s debt instruments is lowered by both Moody’s Investor Services, Inc., which we refer to as “Moody’s,” and Standard and Poor’s Rating Services, which we refer to as “S&P,” on any day within the 60-day period after the date of Calpine’s initial public announcement of the entry into the merger agreement (which 60-day period will be extended so long as the rating of the debt instruments is under publicly announced consideration for a possible downgrade by Moody’s and/or S&P during such 60-day period), but only to the extent Calpine would, if the closing of the merger were to occur, be required to make an offer to prepay or repurchase, as applicable, under any of the debt instruments in connection with such lowered ratings, which we refer to as a “rating event,” and only within ten business days of the occurrence of such event, which we refer to as a “rating event termination.” The 60-day period after the date of Calpine’s initial public announcement of the entry into the merger agreement has expired without the occurrence of a rating event.

 



 

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Calpine may unilaterally terminate the merger agreement, and abandon the merger, at any time prior to the effective time, whether before or after adoption of the merger agreement by Calpine’s stockholders (except as otherwise expressly noted in the merger agreement) as follows:

 

    if prior to the closing date there has been a breach or inaccuracy of any representation or warranty contained in the merger agreement on the part of Parent or Merger Sub, or Parent or Merger Sub has failed to perform or comply with any of its covenants or agreements contained in the merger agreement, which breach, inaccuracy or failure to perform or comply (a) would give rise to the failure of certain conditions specifically set forth in the merger agreement and (b) is incapable of being cured or, if curable, is not cured by Parent or Merger Sub, as the case may be, on or before the earlier of the outside date and the date that is 45 days following the receipt by Parent of written notice from Calpine of such breach, inaccuracy or failure to perform or comply, unless Calpine is then in material breach of any representation, warranty, covenant or agreement contained in the merger agreement, which we refer to as a “parent breach termination”;

 

    if, at any time prior to adoption of the merger agreement by Calpine’s stockholders, (a) the Calpine Board has received a superior proposal, (b) Calpine is in compliance in all material respects with the covenants relating to acquisition proposals contained in the merger agreement, (c) the Calpine Board approves, and Calpine concurrently with the termination of the merger agreement, enters into, an alternative transaction agreement with respect to such superior proposal in accordance with the applicable terms and conditions of the merger agreement and (d) Calpine pays Parent the applicable company termination fee concurrently with or prior to (and as a condition to) such termination, which we refer to as a “superior proposal termination”;

 

    (a) if all of the mutual conditions precedent to the merger, and the conditions to Parent’s and Merger Sub’s obligations to consummate the merger, have been satisfied (other than those conditions that by their nature are to be satisfied at the closing of the merger), (b) Parent and Merger Sub fail to consummate the merger within three business days following the date on which the closing of the merger should have occurred in accordance with the merger agreement and (c) Calpine has delivered written confirmation to Parent that it stands ready and willing to consummate the transactions contemplated by the merger agreement on such date and through the end of such three business day period, which we refer to as a “Parent closing failure termination”; or

 

    if Parent or its affiliates have breached, in any material respect, any of their covenants or agreements relating to efforts to obtain the applicable regulatory approvals, which breach is incapable of being cured or, if curable, is not cured by Parent or its affiliates on or before the earlier of the outside date and the date that is 45 days following the receipt by Parent of written notice from Calpine of such breach, which right to terminate we refer to as an “efforts breach termination”; provided that such breach by Parent or its affiliates that was the basis of Calpine’s termination of the merger agreement under this circumstance did not arise from Calpine’s material breach of any of its covenants or agreements relating to efforts to obtain the applicable regulatory approvals.

Effect of Termination (Page 125)

If the merger agreement is validly terminated, the merger agreement will become null and void and have no effect, subject to certain specified provisions of the merger agreement that survive such termination, including among others, the provisions relating to termination fees and specific performance, and, subject to the provisions relating to termination fees, there will be no liability on the part of Parent, Merger Sub or Calpine. However, nothing in the merger agreement will relieve any party from any losses arising out of its willful breach of, or fraud in connection with, any provision of the merger agreement, subject to certain limitations (as described in the section entitled “The Merger Agreement—Terms of the Merger Agreement—Effect of Termination” beginning on page 125 of this proxy statement).

 



 

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Termination Fee (Page 125)

Under certain specified conditions and limitations, Calpine may be required to pay Parent a fee in connection with the termination of the merger agreement, which we refer to as the “company termination fee,” or Parent may be required to pay Calpine a fee in connection with the termination of the agreement, which we refer to as the “parent termination fee,” as further described in the section entitled “The Merger Agreement—Terms of the Merger Agreement—Termination Fee” beginning on page 125 of this proxy statement.

Calpine is obligated to pay Parent a company termination fee in the following circumstances:

 

    if Parent has effected an adverse recommendation change termination, then Calpine will be obligated to pay to Parent a company termination fee of $142 million no later than the second business day following such termination;

 

    if Calpine has effected a superior proposal termination, then Calpine will be obligated to pay to Parent, concurrently with or prior to (and as a condition to) such termination, a company termination fee of $142 million, unless Calpine has effected a superior proposal termination to enter into an alternative transaction agreement providing for a superior proposal with any exempted person prior to the cut off time, in which case, the company termination fee will be equal to $65 million; or

 

    if (a) prior to the date of the special meeting, an alternative transaction proposal has been publicly made to Calpine or directly to its stockholders generally and not publicly withdrawn at least three business days prior to the special meeting, (b) Calpine or Parent has effected an outside date termination (other than if failure of the merger to be consummated on or before the outside date is due solely to the failure of the debt financing to be funded on the date the closing should have occurred in accordance with the merger agreement and other than if Parent effects an outside date termination (in circumstances in which Calpine could effect a parent breach termination, a Parent closing failure termination or an efforts breach termination)), Calpine or Parent has effected a stockholder vote termination or Parent has effected a company breach termination and (c) within 12 months of such termination, Calpine enters into a definitive agreement to consummate the transactions contemplated by any alternative transaction proposal (in which case the references to “20%” in the definition of alternative transaction proposal will be deemed to be references to “50%”), then Calpine will be obligated to pay Parent a company termination fee of $142 million no later than the second business day following its entry into such definitive agreement.

Parent is obligated to pay a parent termination fee in the following circumstances:

 

    if Calpine has effected an efforts breach termination, a parent breach termination or a Parent closing failure termination, then Parent will be obligated to pay a parent termination fee of $335 million no later than the second business day following such termination;

 

    if Parent has effected an outside date termination (in circumstances in which Calpine could effect an efforts breach termination, a parent breach termination or a Parent closing failure termination), then Parent will be obligated to pay a parent termination fee of $335 million no later than the second business day following such termination;

 

    if Parent has effected a rating event termination (other than for a rating event arising primarily from a breach by Calpine or any of its subsidiaries of the covenant relating to actions taken with respect to a rating event), then Parent will be obligated to pay a parent termination fee of $335 million no later than the second business day following such termination; or

 

   

if Parent has effected a rating event termination (other than (a) for a rating event arising primarily from a breach by Calpine or any of its subsidiaries, or by Parent, Merger Sub or their respective affiliates, of the covenant relating to actions taken with respect to a rating event or (b) in circumstances in which

 



 

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Calpine could effect an efforts breach termination, a parent breach termination or a Parent closing failure termination), then Parent will be obligated to pay a parent termination fee of $100 million no later than the second business day following such termination.

Market Price of Calpine Common Stock (Page 135)

The merger consideration of $15.25 per share of Calpine common stock:

 

    represented a premium of approximately 51% over the closing price per share of Calpine common stock of $10.07 on May 9, 2017, the last trading day prior to the publication of an article in The Wall Street Journal reporting that Calpine was exploring a sale and working with Lazard as it sought buyers;

 

    represented a premium of approximately 50% over the volume weighted average price per share of Calpine common stock of $10.16 for the 20 days prior to May 9, 2017;

 

    represented a premium of approximately 42% over the volume weighted average price per share of Calpine common stock of $10.73 for the 60 days prior to May 9, 2017;

 

    represented a premium of approximately 37% over the volume weighted average price per share of Calpine common stock of $11.14 for the 120 days prior to May 9, 2017; and

 

    represented a premium of approximately 13% over the closing price per share of Calpine common stock of $13.50 on August 17, 2017, the last full trading day prior to the public announcement of the merger agreement.

Appraisal Rights (Page 140)

If the merger is consummated, stockholders who do not vote in favor of the proposal to adopt the merger agreement and who properly demand an appraisal of their shares and who otherwise comply with the requirements set forth in Section 262 of the DGCL, which we refer to as “Section 262,” will be entitled to appraisal rights in connection with the merger. This means that holders of Calpine common stock are entitled to have their shares appraised by the Delaware Court of Chancery and to receive payment in cash of the “fair value” of their shares of Calpine common stock, exclusive of any elements of value arising from the accomplishment or expectation of the merger, together with interest to be paid upon the amount determined to be “fair value,” if any, as determined by the court. Calpine’s stockholders who wish to seek appraisal of their shares are in any case encouraged to seek the advice of legal counsel with respect to the exercise of appraisal rights due to the complexity of the appraisal process.

Calpine’s stockholders considering seeking appraisal should be aware that the “fair value” of their shares as determined pursuant to Section 262 could be more than, the same as or less than the value of the consideration they would receive pursuant to the merger if they did not seek appraisal of their shares.

To exercise your appraisal rights, you must submit a written demand for appraisal to Calpine before the stockholder vote is taken on the proposal to adopt the merger agreement, you must not submit a blank proxy or otherwise vote in favor of the proposal to adopt the merger agreement and you must continue to hold the shares of Calpine common stock of record through the effective time. Your failure to follow the procedures specified under the DGCL will result in the loss of your appraisal rights. The DGCL requirements for exercising appraisal rights are further described in the section entitled “Appraisal Rights” beginning on page 140 of this proxy statement, and the relevant section of the DGCL regarding appraisal rights is reproduced and attached as Annex C to this proxy statement. If you hold your shares of Calpine common stock through a bank, brokerage firm or other nominee and you wish to exercise appraisal rights, you should consult with your bank, brokerage firm or other nominee to determine the appropriate procedures for the making of a demand for appraisal by such bank, brokerage firm or other nominee.

 



 

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Delisting and Deregistration of Calpine Common Stock (Page 145)

If the merger is consummated, in accordance with applicable law, rules and regulations, Calpine common stock will be delisted from the New York Stock Exchange, which we refer to as the “NYSE,” and deregistered under the Exchange Act. As such, we would no longer file periodic reports with the U.S. Securities and Exchange Commission, which we refer to as the “SEC,” on account of Calpine common stock. However, we will continue to make filings with the SEC to the extent such filings are required pursuant to the terms of our registered debt securities.

Help in Answering Questions

If you have questions about the special meeting or the merger after reading this document, you may contact Innisfree M&A Incorporated, which is assisting Calpine in the solicitation of proxies, by mail at 501 Madison Avenue, 20th Floor, New York, New York 10022 or by telephone at (888) 750-5834 (toll-free) for stockholders and (212) 750-5833 (collect call) for banks and brokers.

Neither the SEC nor any state securities commission has approved or disapproved the merger, passed upon the merits or fairness of the merger agreement or the transactions contemplated by the merger agreement, including the merger, or passed upon the adequacy or accuracy of the information contained in this document. Any representation to the contrary is a criminal offense.

 



 

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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

The following questions and answers are intended to address briefly some commonly asked questions regarding the merger, the merger agreement and the special meeting. These questions and answers may not address all questions that may be important to you as a stockholder of Calpine. Please refer to the section entitled “Summary” beginning on page 1 of this proxy statement and the more detailed information contained elsewhere in this proxy statement, the annexes to this proxy statement and the documents referred to in this proxy statement, which you should carefully read in their entirety. You may obtain the information incorporated by reference in this proxy statement without charge by following the instructions set forth in the section entitled “Where You Can Find More Information” beginning on page 147 of this proxy statement.

 

Q. Why am I receiving this proxy statement and proxy card or voting instruction form?

 

A. You are receiving this proxy statement and proxy card or voting instruction form because you owned shares of Calpine common stock at the close of business on November 9, 2017. This proxy statement describes matters on which we urge you to vote and is intended to assist you in deciding how to vote your shares of Calpine common stock with respect to such matters.

 

Q. When and where is the special meeting?

 

A. The special meeting of Calpine’s stockholders will be held on December 15, 2017, at 8:00 a.m., Central Time, at 717 Texas Avenue, Suite 1000, Houston, Texas 77002. This proxy statement for the special meeting is first being mailed to Calpine’s stockholders on or about November 14, 2017.

 

Q. Who is soliciting my vote?

 

A. This proxy statement and the proxy card are provided in connection with the solicitation by the Calpine Board for the special meeting. Solicitation may be made by directors and officers of Calpine, via electronic or regular mail, by telephone, by facsimile, by press release, over the Internet or in person. In addition, we have retained Innisfree M&A Incorporated to assist in the distribution and solicitation of proxies. See the section entitled “The Special Meeting—Payment of Solicitation Expenses” beginning on page 37 of this proxy statement.

 

Q. What will I be voting on?

 

A. You will be voting on the following proposals:

 

    adoption of the merger agreement, which provides for the acquisition of Calpine by Parent;

 

    approval to adjourn the special meeting, if necessary or advisable, to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the merger agreement; and

 

    approval, on an advisory (non-binding) basis, of certain “golden parachute” compensation that may be payable to Calpine’s named executive officers in connection with the consummation of the merger.

 

Q. What are the voting recommendations of the Calpine Board?

 

A. The Calpine Board unanimously recommends that you vote your shares of Calpine common stock “FOR” the proposal to adopt the merger agreement, “FOR” the proposal to adjourn the special meeting, if necessary or advisable, to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the merger agreement and “FOR” the proposal to approve, on an advisory (non-binding) basis, certain “golden parachute” compensation that may be payable to Calpine’s named executive officers in connection with the consummation of the merger.

 

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Q. What is the merger and what effects will it have on Calpine?

 

A. The merger is the acquisition of Calpine by Parent pursuant to the merger agreement. If the merger agreement is adopted by our stockholders and the other closing conditions under the merger agreement have been satisfied or waived, Merger Sub will merge with and into Calpine, the separate corporate existence of Merger Sub will cease and Calpine will continue as the surviving corporation and as a subsidiary of Parent. If the merger is consummated, in accordance with applicable law, rules and regulations, Calpine common stock will be delisted from the NYSE and deregistered under the Exchange Act, and Calpine will no longer be publicly traded or be required to file periodic reports with the SEC on account of Calpine common stock. However, we will continue to make filings with the SEC to the extent such filings are required pursuant to the terms of our registered debt securities. Following consummation of the merger, you will no longer have any interest in Calpine’s future earnings or growth. In addition, each share of Calpine common stock (other than certain excluded shares) you hold will represent only the right to receive $15.25 in cash, without interest and less any applicable withholding taxes.

 

Q. What will I receive if the merger is consummated?

 

A. Upon consummation of the merger, you will be entitled to receive the merger consideration of $15.25 per share in cash, without interest and less any applicable withholding taxes, for each share of Calpine common stock that you own (other than certain excluded shares). For example, if you own 100 shares of Calpine common stock, you will receive $1,525 in cash in exchange for your shares of Calpine common stock, less any applicable withholding taxes. You will not own any shares of capital stock in the surviving corporation.

 

Q. How does the merger consideration compare to the market price of Calpine common stock prior to the announcement of the merger?

 

A. The merger consideration of $15.25 per share of Calpine common stock represents a premium of approximately 51% over the closing price per share of Calpine common stock of $10.07 on May 9, 2017, the last trading day prior to the publication of an article in The Wall Street Journal reporting that Calpine was exploring a sale and working with Lazard as it sought buyers; a premium of approximately 50% over the volume weighted average price per share of Calpine common stock of $10.16 for the 20 days prior to May 9, 2017; a premium of approximately 42% over the volume weighted average price per share of Calpine common stock of $10.73 for the 60 days prior to May 9, 2017; a premium of approximately 37% over the volume weighted average price per share of Calpine common stock of $11.14 for the 120 days prior to May 9, 2017; and a premium of approximately 13% over the closing price per share of Calpine common stock of $13.50 on August 17, 2017, the last full trading day prior to the public announcement of the merger agreement.

On November 13, 2017, the most recent practicable date before this proxy statement was mailed to our stockholders, the closing price for Calpine common stock on the NYSE was $15.02 per share of Calpine common stock. You are encouraged to obtain current market prices of Calpine common stock in connection with voting your shares of Calpine common stock.

 

Q. Upon the consummation of the merger, will Calpine continue as a public company?

 

A. No. If the merger is consummated, in accordance with applicable law, rules and regulations, Calpine common stock will be delisted from the NYSE and deregistered under the Exchange Act, and Calpine will no longer be publicly traded or be required to file periodic reports with the SEC on account of Calpine common stock. However, we will continue to make filings with the SEC to the extent such filings are required pursuant to the terms of our registered debt securities.

 

Q. When do you expect the merger to be consummated?

 

A.

We currently expect to consummate the merger during the first quarter of calendar year 2018. Since the merger is subject to various regulatory clearances and approvals and other conditions, it is possible that

 

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  factors outside the control of Calpine or Parent could result in the merger being consummated at a later time, or not at all. There may be a substantial amount of time between the special meeting and the consummation of the merger. We expect to consummate the merger promptly following the receipt of all required approvals and the satisfaction or waiver of the other conditions precedent as described in the merger agreement.

 

Q. What happens if the merger is not consummated?

 

A. If the merger agreement is not adopted by Calpine’s stockholders or if the merger is not consummated for any other reason, Calpine’s stockholders will not receive any payment for their shares of Calpine common stock. Instead, Calpine will remain a stand-alone, publicly-held entity, and Calpine common stock will continue to be listed and traded on the NYSE. Under specified circumstances, Calpine may be required to pay to Parent a fee with respect to the termination of the merger agreement, as further described in the section entitled “The Merger Agreement—Terms of the Merger Agreement—Termination Fee” beginning on page 125 of this proxy statement.

 

Q. Is the merger expected to be taxable to me?

 

A. Yes. The exchange of shares of Calpine common stock for cash pursuant to the merger will generally be a taxable transaction to United States Holders for United States federal income tax purposes. In general, a United States Holder whose shares of Calpine common stock are converted into the right to receive cash in the merger will recognize gain or loss for United States federal income tax purposes in an amount equal to the difference, if any, between the amount of cash received with respect to such shares of Calpine common stock and such United States Holder’s adjusted tax basis in such shares. Backup withholding may also apply to the cash payments made pursuant to the merger unless the United States Holder or other payee provides a valid taxpayer identification number and complies with certain certification procedures (generally, by providing a properly completed and executed IRS Form W-9) or otherwise establishes an exemption from backup withholding. Payments made to a non-United States Holder with respect to shares of Calpine common stock exchanged for cash pursuant to the merger will generally be exempt from United States federal income tax, subject to certain exceptions discussed below (see the section entitled “The Merger (Proposal 1)—Material United States Federal Income Tax Consequences” beginning on page 90 of this proxy statement). A non-United States Holder may, however, be subject to backup withholding with respect to the cash payments made pursuant to the merger, unless the non-United States Holder certifies on an appropriate IRS Form W-8 that such non-United States Holder is not a United States person or otherwise establishes an exemption from backup withholding. You should read the section entitled “The Merger (Proposal 1)—Material United States Federal Income Tax Consequences” beginning on page 90 of this proxy statement for definitions of “United States Holder” and “non-United States Holder,” and for a more detailed discussion of the United States federal income tax consequences of the merger. You should also consult your tax advisor with respect to the specific tax consequences to you in connection with the merger in light of your own particular circumstances, including federal estate, gift and other non-income tax consequences, and tax consequences under state, local or foreign tax laws or tax treaties.

 

Q. Do any of Calpine’s directors or officers have interests in the merger that may differ from or be in addition to my interests as a stockholder?

 

A.

Yes. In considering the recommendation of the Calpine Board with respect to the proposal to adopt the merger agreement, you should be aware that certain of our directors and executive officers may be deemed to have interests in the transactions contemplated by the merger agreement that are different from, or in addition to, the interests of Calpine’s stockholders generally. The Calpine Board was aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement and the merger, and in recommending that the merger agreement be adopted by Calpine’s stockholders. See the

 

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  section entitled “The Merger (Proposal 1)—Interests of Certain Persons in the Merger” beginning on page 79 of this proxy statement and the section entitled “Advisory Vote on Golden Parachute Compensation (Proposal 3)” beginning on page 129 of this proxy statement.

 

Q. Who may attend the special meeting in person?

 

A. All stockholders of record at the close of business on November 9, 2017, or their duly appointed proxies, and our invited guests may attend the special meeting. Seating is limited and admission is on a first-come, first-served basis. Please be prepared to present valid photo identification for admission to the special meeting.

If you hold shares of Calpine common stock in “street name” (that is, in a brokerage account or through a bank or other nominee) and you plan to vote in person at the special meeting, you will need to bring a valid photo identification and a legal proxy or broker’s proxy card from your bank, brokerage firm or other nominee.

Stockholders of record will be verified against an official list available in the registration area at the meeting. We reserve the right to deny admittance to anyone who cannot adequately show proof of share ownership as of the close of business on the record date.

 

Q. Can I participate if I am unable to attend the special meeting?

 

A. If you are unable to attend the special meeting in person, we urge you to vote your shares of Calpine common stock in advance by telephone, over the Internet or by completing, signing, dating and returning the proxy card in the accompanying prepaid reply envelope, or by following the instructions provided to you by your bank, brokerage firm or other nominee if you hold your shares of Calpine common stock in “street name.” The special meeting will not be broadcast telephonically or over the Internet.

 

Q. When will the stockholders’ list be available for examination?

 

A. A complete list of the stockholders of record at the close of business on the record date will be available for examination by stockholders of record at Calpine’s principal executive offices located at 717 Texas Avenue, Suite 1000, Houston, Texas 77002, during ordinary business hours, for a period of at least 10 days prior to the special meeting and will continue to be available through and during the special meeting.

 

Q. Who may vote?

 

A. You may vote if you were a record owner of Calpine common stock at the close of business on the record date. Each share of Calpine common stock is entitled to one vote. As of the close of business on the record date, there were 360,568,456 shares of Calpine common stock outstanding and entitled to vote at the special meeting.

 

Q. How do I submit a proxy or vote?

 

A. If you are a stockholder of record (that is, if your shares of Calpine common stock are registered in your name with Computershare Trust Company, N.A., our transfer agent), there are four ways to submit your proxy or vote:

 

    Vote your shares by proxy by calling (800) 690-6903, 24 hours a day, seven days a week until 11:59 p.m., Eastern Time, on December 14, 2017. Please have your proxy card in hand when you call. The telephone voting system has easy-to-follow instructions and provides confirmation that the system has properly recorded your vote;

 

    Vote your shares by proxy by visiting the website www.proxyvote.com, 24 hours a day, seven days a week until 11:59 p.m., Eastern Time, on December 14, 2017. Please have your proxy card in hand when you access the website. The website has easy-to-follow instructions and provides confirmation that the system has properly recorded your vote;

 

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    Vote your shares by proxy by completing, signing, dating and returning the proxy card in the accompanying prepaid reply envelope. If you vote by telephone or over the Internet, you do not need to return your proxy card by mail; or

 

    Vote your shares by attending the special meeting in person and depositing your proxy card or completing a ballot that will be distributed at the special meeting.

Submission of proxies by telephone or over the Internet for stockholders of record will be available 24 hours a day and will close at 11:59 p.m., Eastern Time, on December 14, 2017. Submission of proxies by telephone or over the Internet is convenient, provides postage and mailing cost savings and is recorded immediately, minimizing the risk that postal delays may cause proxies to arrive late and therefore not be counted.

Even if you plan to attend the special meeting in person, you are encouraged to submit a proxy. You may still vote your shares of Calpine common stock in person at the meeting even if you have previously submitted a proxy. If you are present at the meeting and desire to vote in person, your previous proxy will not be counted.

 

Q. What if I hold my shares of Calpine common stock in “street name”?

 

A. You should follow the voting directions provided by your bank, brokerage firm or other nominee. You may complete and mail a voting instruction card to your bank, brokerage firm or other nominee or, in most cases, submit voting instructions by telephone or over the Internet to your bank, brokerage firm or other nominee. If you provide specific voting instructions by mail, telephone or over the Internet, your bank, brokerage firm or other nominee will vote your shares of Calpine common stock as you have directed. Please note that if you wish to vote in person at the special meeting, you will need to bring a valid photo identification and a legal proxy or broker’s proxy card from your bank, brokerage firm or other nominee.

 

Q. Will my shares of Calpine common stock held in “street name” or another form of record ownership be combined for voting purposes with shares of Calpine common stock I hold of record?

 

A. No. Because any shares you may hold in “street name” will be deemed to be held by a different stockholder than any shares you hold of record, any shares so held will not be combined for voting purposes with shares you hold of record. Similarly, if you own shares in various registered forms, such as jointly with your spouse, as trustee of a trust or as custodian for a minor, you will receive, and will need to complete, sign, date and return, a separate proxy card for those shares because they are held in a different form of record ownership. Shares held by a corporation or business entity must be voted by an authorized officer of the entity. Shares held in an individual retirement account must be voted under the rules governing the account.

 

Q. Can I change my mind after I submit my proxy?

 

A. Yes. If you are a stockholder of record, you may revoke your proxy at any time before it is voted at the special meeting by:

 

    executing and returning a later-dated proxy at any time before a vote is taken at the special meeting;

 

    voting by telephone or over the Internet no later than 11:59 p.m., Eastern Time, on December 14, 2017;

 

    delivering a written notice of revocation prior to or during the special meeting; or

 

    attending the special meeting and voting in person.

If you hold your shares of Calpine common stock in “street name,” you may submit new voting instructions by contacting your bank, brokerage firm or other nominee. You may also vote in person at the special meeting if you obtain a legal proxy or broker’s proxy card from your bank, brokerage firm or other nominee.

 

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Q. Who will count the votes?

 

A. A representative of Broadridge Financial Solutions, Inc. will count the votes and will serve as the independent inspector of election.

 

Q. Where can I find the voting results of the special meeting?

 

A. Calpine intends to announce preliminary voting results at the special meeting and publish final results in a Current Report on Form 8-K that will be filed with the SEC following the special meeting. All reports that Calpine files with the SEC are publicly available when filed.

 

Q. What does it mean if I receive more than one proxy card?

 

A. It means that you have multiple accounts with brokers or our transfer agent. Please vote all of the shares held in each such account. We encourage you to register all of your shares of Calpine common stock in the same name and address. You may do this by contacting your broker or our transfer agent. Our transfer agent may be reached at (877) 373-6374 (toll free) or (781) 575-2879 (toll), at http://www.computershare.com/investor or at the following address:

Computershare

P.O. Box 505000

Louisville, KY 40233-5000

United States

 

Q. Will my shares of Calpine common stock be voted if I do not submit my proxy?

 

A. If you are the stockholder of record and you do not vote in person at the special meeting or submit a proxy, your shares of Calpine common stock will not be voted. The failure to vote your shares of Calpine common stock will have the same effect as voting “AGAINST” the proposal to adopt the merger agreement.

If your shares of Calpine common stock are held in “street name” by your bank, brokerage firm or other nominee, your bank, brokerage firm or other nominee will be unable to vote your shares of Calpine common stock without instructions from you. Currently, banks, brokerage firms or other nominees have the authority under the NYSE rules to vote shares of Calpine common stock for which their customers do not provide voting instructions only on certain “routine” matters.

Banks, brokerage firms or other nominees are precluded from exercising their voting discretion with respect to approving non-routine matters, such as the proposal to adopt the merger agreement, the proposal to adjourn the special meeting, if necessary or advisable, to solicit additional proxies and the proposal to approve, on an advisory (non-binding) basis, the “golden parachute” compensation. As a result, absent specific instructions from the beneficial owner of such shares of Calpine common stock, banks, brokerage firms or other nominees are not empowered to vote those shares of Calpine common stock on non-routine matters, which we refer to generally as “broker non-votes.” The failure to provide instructions to your bank, brokerage firm or other nominee on how to vote your shares of Calpine common stock will have the same effect as voting “AGAINST” the proposal to adopt the merger agreement.

 

Q. May stockholders ask questions?

 

A. Yes. Our representatives will answer stockholders’ questions of general interest following the special meeting consistent with the rules distributed at the special meeting.

 

Q. How many votes must be present to hold the meeting?

 

A.

A majority of the votes represented by shares of Calpine common stock issued and outstanding at the close of business on the record date and entitled to be cast at the special meeting, present in person or represented by proxy, will constitute a quorum for purposes of the special meeting. Shares of Calpine common stock

 

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  present in person or represented by proxy and entitled to be cast at the special meeting will be counted for purposes of determining whether a quorum exists. If your shares of Calpine common stock are held in “street name” through a bank, brokerage firm or other nominee and you instruct your bank, brokerage firm or other nominee on how to vote your shares of Calpine common stock in accordance with the procedures provided by your bank, brokerage firm or other nominee, then your shares of Calpine common stock will be included in determining the number of shares present or represented at the special meeting for purposes of determining whether a quorum exists. If your shares of Calpine common stock are held in “street name” through a bank, brokerage firm or other nominee and you fail to instruct your bank, brokerage firm or other nominee on how to vote your shares of Calpine common stock, then your shares of Calpine common stock will not be included in determining the number of shares present or represented at the special meeting for purposes of determining whether a quorum exists.

 

Q. What vote is required to approve each proposal?

 

A. In order for the merger agreement to be adopted, holders of a majority of the outstanding shares of Calpine common stock entitled to vote on the proposal to adopt the merger agreement at the special meeting must cast the votes represented by such shares of Calpine common stock “FOR” such proposal.

In order for each of the adjournment proposal and the “golden parachute” compensation proposal to be approved (and provided that, with respect to the “golden parachute” compensation proposal, a quorum is present at the special meeting), holders of a majority of the outstanding shares of Calpine common stock present in person or represented by proxy and entitled to vote on such proposal at the special meeting must cast the votes represented by such shares of Calpine common stock “FOR” such proposal.

 

Q. How are votes counted?

 

A. For the proposal to adopt the merger agreement, you may vote “FOR,” “AGAINST” or “ABSTAIN.” Because the affirmative vote required to adopt the merger agreement is based upon the total number of outstanding shares of Calpine common stock, the failure to vote your shares of Calpine common stock or to instruct your bank, brokerage firm or other nominee to vote your shares of Calpine common stock will have the same effect as voting “AGAINST” the proposal to adopt the merger agreement.

For the proposal to adjourn the special meeting, if necessary or advisable, to solicit additional proxies and for the proposal to approve, on an advisory (non-binding) basis, the “golden parachute” compensation proposal, you may vote “FOR”, “AGAINST” or “ABSTAIN.”

Whether or not a quorum is present in person or represented by proxy at the special meeting, if you attend the meeting or have given a proxy and abstain on the proposal to adjourn the special meeting, if necessary or advisable, to solicit additional proxies, your abstention will have the same effect as voting “AGAINST” such proposal. The failure to instruct your bank, brokerage firm or other nominee on how to vote your shares of Calpine common stock will have no effect on the outcome of the vote to approve the proposal to adjourn the special meeting, if necessary or advisable, to solicit additional proxies.

Provided a quorum is present in person or represented by proxy at the special meeting, if you attend the meeting or have given a proxy and abstain on the proposal to approve, on an advisory (non-binding) basis, the “golden parachute” compensation proposal, your abstention will have the same effect as voting “AGAINST” such proposal. The failure to instruct your bank, brokerage firm or other nominee on how to vote your shares of Calpine common stock will have no effect on the outcome of the vote to approve, on an advisory (non-binding) basis, the “golden parachute” compensation.

The vote to approve the “golden parachute” compensation proposal is advisory only and will not be binding on Calpine or Parent and is not a condition to the consummation of the merger. If the merger agreement is adopted by the stockholders and the merger is consummated, the “golden parachute” compensation may be paid to Calpine’s named executive officers in connection with the consummation of the merger even if stockholders fail to approve the “golden parachute” compensation proposal.

 

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Q. Who will pay for this proxy solicitation?

 

A. We will bear the cost of preparing, assembling and mailing the proxy material and of reimbursing brokers, nominees, fiduciaries and other custodians for out-of-pocket and clerical expenses of transmitting copies of the proxy material to the beneficial owners of shares of Calpine common stock. A few of our directors, officers and employees may participate in the solicitation of proxies without additional compensation.

 

Q. Will any other matters be voted on at the special meeting?

 

A. As of the date of this proxy statement, our management is not aware of any other matters that will be presented for consideration at the special meeting other than those matters discussed in this proxy statement.

 

Q. What is Calpine’s website address?

 

A. Our website address is www.calpine.com. We make this proxy statement, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act available on our website in the “Investors—Financial Information—SEC Filings” section, as soon as reasonably practicable after electronically filing such material with the SEC.

This information is also available free of charge at www.sec.gov, an Internet site maintained by the SEC that contains reports, proxy and information statements, and other information regarding issuers that are filed electronically with the SEC. Stockholders may also read and copy any reports, statements and other information filed by us with the SEC at the SEC public reference room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at (800) SEC-0330 or visit the SEC’s website for further information on its public reference room. Stockholders may also obtain free copies of the documents filed with the SEC by contacting Calpine’s Investor Relations at (713) 830-8775 or by e-mailing Investor-Relations@calpine.com.

The references to our website address and the SEC’s website address do not constitute incorporation by reference of the information contained in these websites and should not be considered part of this document.

Our SEC filings are available in print to any stockholder who requests a copy at the phone number or address listed above.

 

Q. What happens if I sell my shares of Calpine common stock before the special meeting?

 

A. The record date for stockholders entitled to vote at the special meeting is earlier than both the date of the special meeting and the consummation of the merger. If you transfer your shares of Calpine common stock after the record date but before the special meeting, unless special arrangements (such as provision of a proxy) are made between you and the person to whom you transfer your shares of Calpine common stock and each of you notifies Calpine in writing of such special arrangements, you will retain your right to vote such shares at the special meeting but will transfer the right to receive the merger consideration to the person to whom you transfer your shares of Calpine common stock.

 

Q. What do I need to do now?

 

A.

Even if you plan to attend the special meeting in person, after carefully reading and considering the information contained in this proxy statement, please submit your proxy promptly to ensure that your shares of Calpine common stock are represented at the special meeting. If you hold your shares of Calpine common stock in your own name as the stockholder of record, please submit a proxy for your shares of Calpine common stock by (a) completing, signing, dating and returning the enclosed proxy card in the accompanying prepaid reply envelope, (b) using the telephone number printed on your proxy card or (c) using the Internet proxy instructions printed on your proxy card. If you decide to attend the special

 

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  meeting and vote in person, your vote by ballot will revoke any proxy previously submitted. If you are a beneficial owner of shares of Calpine common stock and hold such shares in “street name,” please refer to the instructions provided by your bank, brokerage firm or other nominee to see which of the above choices are available to you.

 

Q. Should I send in my stock certificates now?

 

A. No. You will be sent a letter of transmittal promptly after the consummation of the merger, describing how you may exchange your shares of Calpine common stock for the merger consideration. If your shares of Calpine common stock are held in “street name” by your bank, brokerage firm or other nominee, you will receive instructions from your bank, brokerage firm or other nominee as to how to effect the surrender of your “street name” shares of Calpine common stock in exchange for the merger consideration. Please do NOT return your stock certificate(s) with your proxy.

 

Q. Am I entitled to assert appraisal rights under the DGCL instead of receiving the merger consideration for my shares of Calpine common stock?

 

A. Yes. As a holder of Calpine common stock, you are entitled to assert appraisal rights under the DGCL in connection with the merger if you take certain actions and meet certain conditions. See the section entitled “Appraisal Rights” beginning on page 140 of this proxy statement.

 

Q. Why am I being asked to cast an advisory (non-binding) vote to approve certain “golden parachute” compensation that may be payable to Calpine’s named executive officers in connection with the consummation of the merger?

 

A. In accordance with the rules promulgated under Section 14A of the Exchange Act, Calpine is providing its stockholders with the opportunity to cast a non-binding, advisory vote on the proposal to approve certain “golden parachute” compensation that may be payable to Calpine’s named executive officers in connection with the consummation of the merger.

 

Q. What is the “golden parachute” compensation?

 

A. The “golden parachute” compensation is certain compensation that, whether present, deferred or contingent, is based on or otherwise relates to the merger and may be payable to Calpine’s named executive officers in connection with the consummation of the merger. See the section entitled “Advisory Vote on Golden Parachute Compensation (Proposal 3)” beginning on page 129 of this proxy statement.

 

Q. What will happen if Calpine’s stockholders do not approve the “golden parachute” compensation at the special meeting?

 

A. Approval of the “golden parachute” compensation is not a condition to the consummation of the merger. The vote with respect to the “golden parachute” compensation is an advisory vote and will not be binding on us or Parent. Further, the underlying plans and arrangements are contractual in nature and not, by their terms, subject to stockholder approval. Accordingly, regardless of the outcome of the non-binding advisory vote, if the merger agreement is adopted by our stockholders, the merger is completed and the other terms and conditions of the applicable plans and arrangements are satisfied, our named executive officers will receive the “golden parachute” compensation as disclosed in this proxy statement.

 

Q. Who can help answer my other questions?

 

A.

If you have additional questions about the merger, need assistance in submitting your proxy or voting your shares of Calpine common stock, or need additional copies of the proxy statement or the enclosed proxy

 

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  card, please contact Innisfree M&A Incorporated, by mail at 501 Madison Avenue, 20th Floor, New York, New York 10022 or by telephone at (888) 750-5834 (toll-free) for stockholders and (212) 750-5833 (collect call) for banks and brokers.

If your bank, brokerage firm or other nominee holds your shares, you should also call your bank, brokerage firm or other nominee for additional information.

 

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION

This proxy statement, and the documents to which we refer you in this proxy statement, as well as information included in oral statements or other written statements made or to be made by us, contain statements that, in our opinion, may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “foresee,” “likely,” “project,” “estimate,” “will,” “may,” “should,” “future,” “predicts,” “potential,” “continue” and similar expressions identify these forward-looking statements, which appear in a number of places in this proxy statement (and the documents to which we refer you in this proxy statement) and include, but are not limited to, all statements relating directly or indirectly to statements regarding the ability to consummate the merger considering the various closing conditions, projected financial information, the timing or likelihood of completing the merger to which this proxy statement relates, plans for future growth and other business development activities as well as capital expenditures and the effects of regulation and competition and all other statements regarding our intent, plans, beliefs or expectations or those of our directors or officers. You are cautioned that such forward-looking statements are not assurances for future performance or events and involve risks and uncertainties that could cause actual results and developments to differ materially from those covered in such forward-looking statements. These forward-looking statements are only predictions based on Calpine’s current expectations and projections about future events. Important factors could cause Calpine’s actual results, level of activity, performance or achievements to differ materially from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, the risks detailed in our filings with the SEC, including our most recent filings on Forms 10-K and 10-Q, factors and matters contained or incorporated by reference in this document, and the following factors:

 

    the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement, including a termination under circumstances that could require us to pay a termination fee;

 

    the inability to consummate the merger due to the failure to obtain stockholder approval or the failure to satisfy (or to have waived) other conditions to the consummation of the merger, including receipt of required regulatory approvals;

 

    the failure of the merger to close for any other reason;

 

    the failure by Parent to obtain the necessary equity and debt financing set forth in the commitments entered into in connection with the merger, or alternative financing, or the failure of any such financing to be sufficient to consummate the merger and the other transactions contemplated by the merger agreement;

 

    the fact that, although Parent must use reasonable best efforts to obtain the financing contemplated by the bridge commitment letter, there is a risk that the debt financing might not be obtained;

 

    the risk that the merger agreement may be terminated in circumstances that require us to pay Parent a company termination fee up to $142 million;

 

    risks that the proposed transaction disrupts current plans and operations and the potential difficulties in employee retention as a result of the merger;

 

    risks that the anticipated benefits from the merger will not be realized, or will not be realized within the expected time periods;

 

    the outcome of any legal proceedings, regulatory proceedings or enforcement matters that have been or may be instituted against Calpine and/or others relating to the merger agreement or the merger;

 

    diversion of management’s attention from ongoing business concerns;

 

    the effect of the announcement of the merger on our business relationships, operating results and business generally;

 

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    the amount of the costs, fees, expenses and charges related to the merger;

 

    the parties’ ability to meet expectations regarding the timing and consummation of the merger, including uncertainties as to the timing of the closing of the merger;

 

    risks that Calpine’s business will have been adversely impacted during the pendency of the transaction;

 

    the effects of disruption from the merger making it more difficult to hire key personnel and maintain relationships with customers, suppliers, vendors, licensors, licensees and other business partners;

 

    the risk that competing offers will be made;

 

    the impact of the merger on Calpine’s credit rating;

 

    the fact that Calpine’s stockholders would forgo the opportunity to realize the potential long-term value of the successful execution of Calpine’s current strategy as an independent company; and

 

    the possibility that Parent could, at a later date, engage in unspecified transactions, including restructuring efforts, special dividends or the sale of some or all of Calpine’s assets to one or more as-yet unknown purchasers, that could conceivably produce a higher aggregate value than that available to stockholders in the merger.

These risks are not exhaustive and may not include factors which could adversely impact Calpine’s business and financial performance. Additional information about these factors and other factors that may cause actual results to differ materially include those set forth in the reports that Calpine files from time to time with the SEC, including our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, and quarterly and current reports on Forms 10-Q and 8-K. Consequently, all of the forward-looking statements we make in this document are qualified by the information contained or incorporated by reference herein, including, but not limited to, (a) the information contained under this heading and (b) the information contained under the headings “Business” and “Risk Factors” and information in our consolidated financial statements and notes thereto included in our most recent filings, including our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, and quarterly and current reports on Forms 10-Q and 8-K (see the section entitled “Where You Can Find More Information” beginning on page 147 of this proxy statement). Moreover, Calpine operates in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for Calpine’s management to predict all risk factors, nor can it assess the impact of all factors on Calpine’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

Although Calpine believes the expectations reflected in the forward-looking statements were reasonable at the time made, it cannot guarantee future results, level of activity, performance or achievements. Moreover, neither Calpine nor any other person assumes responsibility for the accuracy or completeness of any of these forward-looking statements. All forward-looking statements are made only as of the date they are made and you should not rely upon forward-looking statements as predictions of future events. Except to the extent required by law, Calpine does not undertake any responsibility to update any of these forward-looking statements to conform its prior statements to actual results or revised expectations. You should carefully consider the cautionary statements contained or referred to in this section in connection with the forward looking statements contained in this proxy statement and any subsequent written or oral forward-looking statements that may be issued by us or persons acting on our behalf.

 

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PARTIES TO THE MERGER

Calpine

Calpine Corporation

717 Texas Avenue, Suite 1000

Houston, Texas 77002

Telephone: (713) 830-2000

www.calpine.com

Calpine Corporation, a Delaware corporation, is a premier power generation company with 80 power plants primarily in the U.S. We sell power and related services that we produce to our wholesale customers who include commercial and industrial end-users, state and regional wholesale market operators and our retail affiliates who serve retail customers. We purchase primarily natural gas and some fuel oil as fuel for our power plants and engage in related natural gas transportation and storage transactions.

Calpine common stock is listed for trading on the NYSE under the symbol “CPN.”

Detailed descriptions about Calpine’s business and financial results are contained in its Annual Report on Form 10-K for the fiscal year ended December 31, 2016, and subsequent reports filed with the SEC, which are incorporated in this proxy statement by reference. For more details, visit www.calpine.com. Our website address is provided as an inactive textual reference only. The information contained on our website is not incorporated into, and does not form a part of, this proxy statement or any other report or document on file with or furnished to the SEC. See also the section entitled “Where You Can Find More Information” beginning on page 147 of this proxy statement.

Parent

Volt Parent, LP

c/o Energy Capital Partners III, LLC

51 John F. Kennedy Parkway, Suite 200

Short Hills, New Jersey 07078

Telephone: (973) 671-6100

Volt Parent, LP, or Parent, is a Delaware limited partnership that was formed by Energy Capital Partners on August 10, 2017, on behalf of itself, its affiliated funds and the consortium co-investors, for the purpose of entering into the merger agreement and completing the transactions contemplated thereby and related financing transactions. Parent has not carried on any activities on or prior to the date of this proxy statement other than those related to its formation and as contemplated by or related to the merger agreement and the related financing transactions. Parent is currently controlled by Energy Capital Partners and its affiliates. Upon consummation of the merger, Calpine will become a subsidiary of Parent.

Parent and Merger Sub are affiliates of Energy Capital Partners and its affiliated funds. Energy Capital Partners, together with its affiliated funds, is a private equity firm focused on investing primarily in North America’s energy infrastructure. Energy Capital Partners focuses on acquiring and developing interests in high quality assets, contracts and businesses primarily in the following sectors: power generation, midstream oil and gas, electric transmission, energy equipment and services, environmental infrastructure and other energy related assets.

 

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Merger Sub

Volt Merger Sub, Inc.

c/o Energy Capital Partners III, LLC

51 John F. Kennedy Parkway, Suite 200

Short Hills, New Jersey 07078

Telephone: (973) 671-6100

Volt Merger Sub, Inc., or Merger Sub, is a Delaware corporation and wholly-owned subsidiary of Parent that was formed by Energy Capital Partners on August 10, 2017, on behalf of itself, its affiliated funds and the consortium co-investors, for the purpose of entering into the merger agreement and completing the transactions contemplated thereby and related financing transactions. Merger Sub has not carried on any activities on or prior to the date of this proxy statement other than those related to its formation and as contemplated by or related to the merger agreement and the related financing transactions. Upon consummation of the merger, Merger Sub will merge with and into Calpine, the separate corporate existence of Merger Sub will cease and Calpine will continue as the surviving corporation and as a subsidiary of Parent.

 

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THE SPECIAL MEETING

Time, Place and Purpose of the Special Meeting

This proxy statement is being furnished to our stockholders as part of the solicitation of proxies by the Calpine Board for use at the special meeting to be held on December 15, 2017, at 8:00 a.m., Central Time, at 717 Texas Avenue, Suite 1000, Houston, Texas 77002, or at any postponement or adjournment thereof. At the special meeting, holders of Calpine common stock will be asked to adopt the merger agreement, to approve adjournment of the special meeting, if necessary or advisable, to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the merger agreement and to cast an advisory (non-binding) vote to approve certain “golden parachute” compensation that may be payable to Calpine’s named executive officers in connection with the consummation of the merger.

Our stockholders must adopt the merger agreement in order for the merger to occur. If our stockholders fail to adopt the merger agreement, the merger will not occur. A copy of the merger agreement is attached as Annex A to this proxy statement, which we encourage you to read carefully in its entirety.

Recommendation of the Calpine Board

After careful consideration, the Calpine Board unanimously determined that the terms of the merger agreement and the transactions contemplated by the merger agreement, including the merger, are advisable and fair to, and in the best interests of, Calpine and its stockholders, unanimously approved and declared advisable the terms of the merger agreement and the transactions contemplated by the merger agreement, including the merger, and recommended to Calpine’s stockholders that they adopt the merger agreement and thereby approve the merger and the other transactions contemplated by the merger agreement.

The Calpine Board unanimously recommends that you vote “FOR” the proposal to adopt the merger agreement and “FOR” the proposal to adjourn the special meeting, if necessary or advisable, to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the merger agreement. In addition, the Calpine Board unanimously recommends that you vote “FOR” the proposal to approve, on an advisory (non-binding) basis, certain “golden parachute” compensation that may be payable to Calpine’s named executive officers in connection with the consummation of the merger.

Record Date and Quorum

The Calpine Board has fixed the close of business on November 9, 2017, as the record date for the special meeting, and only holders of record of Calpine common stock at the close of business on the record date are entitled to vote at the special meeting. You are entitled to receive notice of, and to vote at, the special meeting if you were a record owner of shares of Calpine common stock at the close of business on the record date. At the close of business on the record date, there were 360,568,456 shares of Calpine common stock outstanding and entitled to vote. Each share of Calpine common stock entitles its holder to one vote on all matters properly coming before the special meeting.

The presence, in person or represented by proxy, of a majority of the votes represented by shares of Calpine common stock issued and outstanding at the close of business on the record date and entitled to be cast at the special meeting is necessary to constitute a quorum for the transaction of business at the special meeting. Abstentions are included in determining the number of shares present or represented at the special meeting for purposes of determining whether a quorum exists. If your shares of Calpine common stock are held in “street name” through a bank, brokerage firm or other nominee and you instruct your bank, brokerage firm or other nominee on how to vote your shares of Calpine common stock in accordance with the procedures provided by your bank, brokerage firm or other nominee, then your shares of Calpine common stock will be included in determining the number of shares present or represented at the special meeting for purposes of determining whether a quorum exists. If your shares of Calpine common stock are held in “street name” through a bank,

 

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brokerage firm or other nominee and you fail to instruct your bank, brokerage firm or other nominee on how to vote your shares of Calpine common stock, then your shares of Calpine common stock will not be included in determining the number of shares present or represented at the special meeting for purposes of determining whether a quorum exists. Once a share of Calpine common stock is present or represented at the special meeting, it will be counted for purposes of determining whether a quorum exists at the special meeting and any adjournment of the special meeting. However, if a new record date is set for the adjourned special meeting, then a new quorum will have to be established. In the event that less than a quorum is present in person or represented by proxy at the special meeting, it is expected that the special meeting will be adjourned.

Attending the Special Meeting

Stockholders may vote by attending the special meeting and voting in person. In order to attend the special meeting in person, arrive on time at the address listed above with your proxy card and a form of valid photo identification. For the safety and security of our stockholders, you will be denied admittance to the special meeting if you fail to present satisfactory proof of share ownership and photo identification or if you otherwise refuse to comply with our security procedures. Proof of ownership can be accomplished through the following:

 

    the Notice of Special Meeting of Stockholders;

 

    a brokerage statement or letter from your bank, brokerage firm or other nominee with respect to your ownership of shares of Calpine common stock on November 9, 2017;

 

    a proxy card;

 

    a voting instruction form; or

 

    a legal proxy or broker’s proxy card provided by your bank, brokerage firm or other nominee.

Even if you expect to attend the special meeting in person, we urge you to vote your shares of Calpine common stock in advance by telephone, over the Internet or by completing, signing, dating and returning the proxy card in the accompanying prepaid reply envelope, or by following the instructions provided to you by your bank, brokerage or other nominee if you hold your shares of Calpine common stock in “street name.”

If you are a beneficial owner of shares of Calpine common stock held in “street name” and you want to vote in person at the special meeting, you must contact your bank, brokerage firm or other nominee that holds your shares of Calpine common stock in their name prior to the meeting to obtain a legal proxy or broker’s proxy card that you should bring to the special meeting to demonstrate your authority to vote. Please note that cameras, recording devices and other electronic devices will not be permitted at the special meeting.

Vote Required

For the proposal to adopt the merger agreement, you may vote “FOR,” “AGAINST” or “ABSTAIN.” In order for the merger agreement to be adopted, holders of a majority of the outstanding shares of Calpine common stock entitled to vote on the proposal to adopt the merger agreement at the special meeting must cast the votes represented by such shares of Calpine common stock “FOR” such proposal. If you fail to submit a proxy or to vote in person at the special meeting, or if you abstain or do not provide your bank, brokerage firm or other nominee with voting instructions, as applicable, this will have the same effect as voting “AGAINST” the proposal to adopt the merger agreement. The failure to vote your shares of Calpine common stock or to instruct your bank, brokerage firm or other nominee to vote your shares of Calpine common stock will have the same effect as voting “AGAINST” the proposal to adopt the merger agreement.

For the proposal to adjourn the special meeting, if necessary or advisable, to solicit additional proxies, you may vote “FOR,” “AGAINST” or “ABSTAIN.” In order for the adjournment proposal to be approved, whether

 

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or not a quorum is present, holders of a majority of the outstanding shares of Calpine common stock present in person or represented by proxy and entitled to vote on such proposal at the special meeting must cast the votes represented by such shares of Calpine common stock “FOR” such proposal. For stockholders who attend the meeting or are represented by proxy and abstain from voting, that abstention will have the same effect as voting “AGAINST” the proposal to adjourn the special meeting, if necessary or advisable, to solicit additional proxies. The failure to instruct your bank, brokerage firm or other nominee on how to vote your shares of Calpine common stock will have no effect on the outcome of the vote to approve the proposal to adjourn the special meeting, if necessary or advisable, to solicit additional proxies.

For the proposal regarding the “golden parachute” compensation, you may vote “FOR,” “AGAINST” or “ABSTAIN.” In order for the proposal to approve, on an advisory (non-binding) basis, the “golden parachute” compensation to be approved, if a quorum is present, holders of a majority of the outstanding shares of Calpine common stock present in person or represented by proxy and entitled to vote on such proposal at the special meeting must cast the votes represented by such shares of Calpine common stock “FOR” such proposal. For stockholders who attend the meeting or are represented by proxy and abstain from voting, that abstention will have the same effect as voting “AGAINST” the proposal to approve, on an advisory (non-binding) basis, the “golden parachute” compensation proposal. The failure to instruct your bank, brokerage firm or other nominee on how to vote your shares of Calpine common stock will have no effect on the outcome of the proposal to approve, on an advisory (non-binding) basis, the “golden parachute” compensation.

If your shares of Calpine common stock are registered directly in your name with our transfer agent, Computershare Trust Company, N.A., you are considered, with respect to those shares of Calpine common stock, the “stockholder of record.” This proxy statement and proxy card have been sent directly to you by Calpine.

If your shares of Calpine common stock are held through a bank, brokerage firm or other nominee, you are considered the “beneficial owner” of shares of Calpine common stock held in “street name.” In that case, this proxy statement has been forwarded to you by your bank, brokerage firm or other nominee who is considered, with respect to those shares of Calpine common stock, the stockholder of record. As the beneficial owner, you have the right to direct your bank, brokerage firm or other nominee on how to vote your shares of Calpine common stock by following their instructions for voting.

Under the NYSE rules, banks, brokerage firms or other nominees who hold shares in “street name” for customers have the authority to vote only on “routine” proposals when they have not received instructions from beneficial owners. However, banks, brokerage firms and other nominees are precluded from exercising their voting discretion with respect to approving non-routine matters, such as the proposal to adopt the merger agreement, the proposal to adjourn the special meeting, if necessary or advisable, to solicit additional proxies and the proposal to approve, on an advisory (non-binding) basis, the “golden parachute” compensation. As a result, absent specific instructions from the beneficial owner of such shares of Calpine common stock, banks, brokerage firms and other nominees are not empowered to vote those shares of Calpine common stock on non-routine matters.

Voting of Proxies

If you are a stockholder of record, you may submit your proxy or vote your shares of Calpine common stock on matters presented at the special meeting in any of the following ways:

 

    Vote your shares by proxy by calling (800) 690-6903, 24 hours a day, seven days a week until 11:59 p.m., Eastern Time, on December 14, 2017. Please have your proxy card in hand when you call. The telephone voting system has easy-to-follow instructions and provides confirmation that the system has properly recorded your vote;

 

   

Vote your shares by proxy by visiting the website www.proxyvote.com, 24 hours a day, seven days a week until 11:59 p.m., Eastern Time, on December 14, 2017. Please have your proxy card in hand

 

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when you access the website. The website has easy-to-follow instructions and provides confirmation that the system has properly recorded your vote;

 

    Vote your shares by proxy by completing, signing, dating and returning the proxy card in the accompanying prepaid reply envelope. If you vote by telephone or over the Internet, you do not need to return your proxy card by mail; or

 

    Vote your shares by attending the special meeting in person and depositing your proxy card or completing a ballot that will be distributed at the special meeting.

If you are a beneficial owner, you will receive instructions from your bank, brokerage firm or other nominee that you must follow in order to have your shares of Calpine common stock voted. Those instructions will identify which of the above choices are available to you in order to have your shares of Calpine common stock voted.

Please note that if you are a beneficial owner and wish to vote in person at the special meeting, you will need to bring a valid photo identification and a legal proxy or broker’s proxy card from your bank, brokerage firm or other nominee.

Submission of proxies by telephone or over the Internet for stockholders of record will be available 24 hours a day and will close at 11:59 p.m., Eastern Time, on December 14, 2017. If you choose to submit your proxy by mailing a proxy card, your proxy card must be filed with our Secretary by the time the special meeting begins. Please do not send in your stock certificates with your proxy card. When the merger is consummated, a separate letter of transmittal will be mailed to you that will enable you to receive the merger consideration in exchange for your stock certificates.

If you submit your proxy, regardless of the method you choose, the individuals named on the enclosed proxy card, and each of them, with full power of substitution, as your proxies, will vote your shares of Calpine common stock in the way that you indicate. When completing the Internet or telephone processes or the proxy card, you may specify whether your shares of Calpine common stock should be voted for or against or to abstain from voting on all, some or none of the specific items of business to come before the special meeting.

If you properly sign your proxy card but do not mark the boxes showing how your shares of Calpine common stock should be voted on a matter, the shares of Calpine common stock represented by your properly signed proxy will be voted “FOR” the proposal to adopt the merger agreement, “FOR” the proposal to adjourn the special meeting, if necessary or advisable, to solicit additional proxies and “FOR” the proposal to approve, on an advisory (non-binding) basis, the “golden parachute” compensation.

It is important that you submit a proxy for your shares of Calpine common stock promptly. Whether or not you plan to attend the special meeting in person, please complete, sign, date and return, as promptly as possible, the enclosed proxy card in the accompanying prepaid reply envelope, or submit your proxy by telephone or over the Internet, prior to the special meeting to ensure that your shares of Calpine common stock will be represented at the special meeting if you are unable to attend.

If your shares of Calpine common stock are held in “street name” by your bank, brokerage firm or other nominee, you should instruct your bank, brokerage firm or other nominee on how to vote your shares of Calpine common stock using the instructions provided by your bank, brokerage firm or other nominee. If you fail to submit a proxy or to vote in person at the special meeting, or if you abstain or do not provide your bank, brokerage firm or other nominee with voting instructions, as applicable, this will have the same effect as voting “AGAINST” the proposal to adopt the merger agreement.

 

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Revocability of Proxies

If you are a stockholder of record, you have the right to revoke a proxy, whether delivered over the Internet, or by telephone or by mail, at any time before it is voted at the special meeting by:

 

    executing and returning a later-dated proxy at any time before a vote is taken at the special meeting;

 

    voting by telephone or over the Internet no later than 11:59 p.m., Eastern Time, on December 14, 2017;

 

    delivering a written notice of revocation prior to or during the special meeting; or

 

    attending the special meeting and voting in person.

If you hold your shares of Calpine common stock in “street name,” you may submit new voting instructions by contacting your bank, brokerage firm or other nominee. You may also vote in person at the special meeting if you bring a valid photo identification and a legal proxy or broker’s proxy card from your bank, brokerage firm or other nominee.

Voting by Calpine’s Directors and Executive Officers

As of the close of business on the record date, the directors and executive officers of Calpine beneficially owned and were entitled to vote, in the aggregate, 1,801,468 shares of Calpine common stock, including company restricted shares, but excluding shares of Calpine common stock issuable upon the exercise of company options and shares subject to company restricted stock units and company performance stock units as of such date, representing approximately 0.5% of the outstanding shares of Calpine common stock at the close of business on the record date.

The directors and executive officers have informed Calpine that they currently intend to vote all of their shares of Calpine common stock (other than shares of Calpine common stock as to which such holder may not have discretionary authority) “FOR” the proposal to adopt the merger agreement, “FOR” the proposal to adjourn the special meeting, if necessary or advisable, to solicit additional proxies and “FOR” the proposal to approve, on an advisory (non-binding) basis, the “golden parachute” compensation.

Householding

To reduce the expense of delivering duplicate proxy materials to our shareholders, we are relying on the SEC rules that permit us to deliver only one set of proxy materials (other than proxy cards, which will remain separate) to multiple shareholders who share an address unless we receive contrary instructions from any shareholder at that address. This practice, known as “householding,” reduces duplicate mailings, thus saving printing and postage costs as well as natural resources. Once you have received notice from your broker or us that they or we will be householding materials to your address, householding will continue until you are notified otherwise or until you revoke your consent. If, at any time, you wish to receive a separate copy of the proxy materials, free of charge, or if you wish to receive separate copies of future proxy materials, please mail your request to Calpine Corporation, 717 Texas Avenue, Suite 1000, Houston, Texas 77002, attention: Investor Relations, or call us at (713) 830-8775.

Tabulation of Votes

All votes will be tabulated by a representative of Broadridge Financial Solutions, Inc. who will act as the independent inspector of election appointed for the special meeting and will separately tabulate affirmative and negative votes, abstentions and broker non-votes.

Adjournments

Although it is not currently expected, the special meeting may be adjourned, including for the purpose of soliciting additional proxies if there are insufficient votes at the time of the special meeting to adopt the merger

 

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agreement or if less than a quorum is present in person or represented by proxy at the special meeting. Other than an announcement to be made at the special meeting of the time, date and place of an adjourned meeting, an adjournment generally may be made without notice. Any adjournment of the special meeting for the purpose of soliciting additional proxies will allow Calpine’s stockholders who have already sent in their proxies to revoke them at any time prior to their use at the special meeting as adjourned.

Appraisal Rights

If the merger is consummated, stockholders who do not vote in favor of the proposal to adopt the merger agreement and who properly demand an appraisal of their shares and who otherwise comply with the requirements set forth in Section 262 will be entitled to appraisal rights in connection with the merger. This means that holders of Calpine common stock are entitled to have their shares appraised by the Delaware Court of Chancery and to receive payment in cash of the “fair value” of their shares of Calpine common stock, exclusive of any elements of value arising from the accomplishment or expectation of the merger, together with interest to be paid upon the amount determined to be “fair value,” if any, as determined by the court. Stockholders who wish to seek appraisal of their shares of Calpine common stock are in any case encouraged to seek the advice of legal counsel with respect to the exercise of appraisal rights due to the complexity of the appraisal process.

Stockholders considering seeking appraisal should be aware that the “fair value” of their shares as determined pursuant to Section 262 could be more than, the same as or less than the value of the consideration they would receive pursuant to the merger if they did not seek appraisal of their shares.

To exercise your appraisal rights, you must submit a written demand for appraisal to Calpine before the stockholder vote is taken on the proposal to adopt the merger agreement, you must not submit a blank proxy or otherwise vote in favor of the proposal to adopt the merger agreement and you must continue to hold the shares of Calpine common stock of record through the effective time. Your failure to follow the procedures specified under the DGCL will result in the loss of your appraisal rights. The DGCL requirements for exercising appraisal rights are described in further detail in the section entitled “Appraisal Rights” beginning on page 140 of this proxy statement, and the relevant section of the DGCL regarding appraisal rights is reproduced and attached as Annex C to this proxy statement. If you hold your shares of Calpine common stock through a bank, brokerage firm or other nominee and you wish to exercise appraisal rights, you should consult with your bank, brokerage firm or other nominee to determine the appropriate procedures for the making of a demand for appraisal by such bank, brokerage firm or other nominee.

Payment of Solicitation Expenses

Calpine will bear the expense of soliciting proxies on behalf of the Calpine Board. Starting on or about November 14, 2017, Calpine will mail this proxy statement and a proxy card to stockholders. In addition to solicitation by mail, our directors, officers and employees may, without extra remuneration, solicit proxies personally, by telephone, by facsimile or by other electronic means from stockholders. Calpine expects to retain Innisfree M&A Incorporated, a proxy solicitation firm, to assist in the solicitation of proxies at a cost that will not exceed $25,000, plus reimbursement of reasonable expenses. In addition, Calpine will reimburse brokers, banks and other custodians, nominees and fiduciaries representing beneficial owners of shares of Calpine common stock for their reasonable out-of-pocket expenses incurred in connection with distributing forms of proxies and proxy materials to beneficial owners of Calpine common stock.

Other Business

As of the date of this proxy statement, the Calpine Board knows of no matters that will be presented for consideration at the special meeting other than as described in this proxy statement.

 

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Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to be Held on December 15, 2017

This proxy statement is available at www.calpine.com under “Investors—Financial Information—SEC Filings.” Our website address is provided as an inactive textual reference only. The information contained on our website is not incorporated into, and does not form a part of, this proxy statement or any other report or document on file with or furnished to the SEC. See also the section entitled “Where You Can Find More Information” beginning on page 147 of this proxy statement.

Questions and Additional Information

If you have more questions about the merger or how to submit your proxy, or if you need additional copies of this proxy statement or the enclosed proxy card or voting instructions, please contact our proxy solicitor, Innisfree M&A Incorporated, by mail at 501 Madison Avenue, 20th Floor, New York, New York 10022 or by telephone at (888) 750-5834 (toll-free) for stockholders and (212) 750-5833 (collect call) for banks and brokers.

 

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THE MERGER (PROPOSAL 1)

The rights and obligations of the parties to the merger agreement are governed by the specific terms and conditions of the merger agreement and not by any summary or other information in this proxy statement. Therefore, the information in this proxy statement regarding the merger agreement and the merger is qualified in its entirety by reference to the merger agreement, a copy of which is attached as Annex A to this proxy statement and incorporated herein by reference. We encourage you to read the merger agreement carefully and in its entirety because it is the principal document that governs the merger.

Structure of the Merger

If the merger is consummated, then at the effective time, Merger Sub will merge with and into Calpine, the separate corporate existence of Merger Sub will cease and Calpine will continue as the surviving corporation and as a subsidiary of Parent. As a result of the merger, Calpine will cease to be a publicly traded company, and you will not own any shares of capital stock of the surviving corporation.

Merger Consideration

At the effective time, each outstanding share of Calpine common stock (other than certain excluded shares), will be automatically converted into the right to receive $15.25 in cash, without interest and less any applicable withholding taxes.

Background of the Merger

As part of its ongoing strategic planning process, the Calpine Board, together with Calpine’s senior management, regularly reviews and evaluates Calpine’s businesses, operations, financial performance, competitive position and strategic initiatives with a goal of maximizing stockholder value, including evaluation of the strategic environment in the power industry and consideration of potential value-maximizing transactions, such as portfolio diversification, securities repurchases, dividends, alternative financings, project developments, acquisitions, divestitures of assets or certain business segments or portions thereof and a sale of Calpine or other business combinations. On several occasions during the past two years, the Calpine Board met, together with Calpine’s senior management and outside advisors, to discuss and receive updates regarding potential strategic alternatives in the context of the equity market and the power sector environment and Calpine’s capital structure profile, including a sale of Calpine, and to evaluate potential business combinations with independent power producers and competitive power affiliates of utilities. Such evaluations did not result in any transactable opportunities. Also during such two-year period, representatives of Calpine and Energy Capital Partners discussed on occasion the energy industry in general and potential strategic opportunities involving third parties, a sale of Calpine or certain of Calpine’s assets or a sale of certain of Energy Capital Partners’ assets, including a potential long-term arrangement involving an affiliate of Energy Capital Partners and one of Calpine’s Texas plants.

On February 14, 2017, the Calpine Board convened a regularly-scheduled meeting in person to, among other things, further evaluate potential strategic alternatives that could be available to Calpine as discussed at prior Calpine Board meetings in connection with the Calpine Board’s ongoing strategic planning process. Members of Calpine’s senior management and a representative of White & Case LLP, outside legal counsel to Calpine, which we refer to as “White & Case” in this proxy statement, also attended this meeting. At this meeting, John B. (Thad) Hill, Chief Executive Officer and a director of Calpine, updated the Calpine Board on the status of Calpine’s evaluation of potential strategic alternatives to enhance value for Calpine’s stockholders that had been discussed at prior Calpine Board meetings, including a potential sale of Calpine, which evaluation was being conducted at the direction of the Calpine Board and with oversight from Frank Cassidy, Chairman of the Calpine Board. Also at this meeting, a representative of White & Case provided an overview to the Calpine Board of its fiduciary duties in the context of a potential sale transaction and noted the importance of independent director oversight in transactions in which members of management may be employed by an acquiror. After such

 

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update, Mr. Hill and Zamir Rauf, Executive Vice President and Chief Financial Officer of Calpine, reviewed with the Calpine Board illustrative structuring and financial matters regarding a potential transaction involving financial sponsors. Mr. Hill also discussed with the Calpine Board business combinations with certain potential strategic counterparties and contacts with those entities in the recent past, noting that perspectives regarding the viability of a business combination with such counterparties would be discussed at the Calpine Board meeting scheduled for the next day. The Calpine Board, together with members of Calpine’s senior management, then discussed potential strategic alternatives, including a potential sale of Calpine.

On February 15, 2017, the Calpine Board continued its regularly-scheduled meeting in person to, among other things, further evaluate potential strategic alternatives that could be available to Calpine. Members of Calpine’s senior management also attended this meeting. At this meeting, Mr. Hill discussed in greater detail with the Calpine Board Calpine senior management’s recent interactions with, and assessments of, other independent power producers and competitive power affiliates of utilities, noting that, among other things, (a) such interactions and assessments did not lead to any near-term opportunities, (b) seeking an opportunity with certain potential strategic counterparties would not advance Calpine’s strategic objectives or likely would not be value accretive for Calpine’s stockholders or such counterparty and (c) an acquisition of Calpine by an integrated utility group was unlikely given that, among other factors, Calpine’s current debt profile could adversely impact such group’s credit ratings. The Calpine Board, together with members of Calpine’s senior management, then discussed the current public market for shares of Calpine common stock, including that uncertainty about regulatory and energy market dynamics affecting the independent power producer industry had caused traditional investors in the sector to lose confidence in the potential for growth, which resulted in lower valuation multiples for independent power producers, including Calpine, and that the limited number of publicly traded companies in the industry and the decline in the total investible market capitalization of companies in the sector were impediments to traditional long-term investors continuing to invest in the industry, all of which negatively affected the price of shares of Calpine common stock, as did energy market prices generally. After further discussion, the consensus of the Calpine Board was that (a) Calpine should continue considering potential strategic alternatives, including remaining as a standalone company and continuing its publicly announced delevering plan, (b) a financial advisor should be engaged to recommend an approach to assessing the potential interest of a limited number of potential financial sponsors, given the likely absence of a transactable opportunity involving a strategic counterparty and concerns with maintaining confidentiality, that were known to invest in the industries in which Calpine operates and could consummate a transaction requiring a substantial equity commitment and (c) Mr. Hill should continue to contact certain potential strategic counterparties to gauge their interest in a potential transaction involving Calpine. The Calpine Board emphasized that any process involving a potential sale of Calpine should be undertaken solely at the direction, and under the supervision, of the Calpine Board, and the Calpine Board determined that Mr. Cassidy should participate when possible in any substantive meetings and discussions with advisors and potential counterparties, with the entire Calpine Board being updated regularly. Throughout the strategic alternatives review process, including the evaluation and negotiation of a transaction with Energy Capital Partners, Mr. Cassidy was involved in substantive meetings and discussions with advisors and potential counterparties, including Energy Capital Partners or, when unavailable, promptly received updates from Calpine’s senior management and outside advisors.

Consistent with the Calpine Board’s directives, members of Calpine’s senior management, under the supervision of Mr. Cassidy, subsequently contacted and considered several potential financial advisors and, after consulting with Mr. Cassidy and involving Mr. Cassidy in preliminary discussions with Lazard, commenced working with Lazard on a preliminary basis to evaluate potential strategic alternatives. Lazard was subsequently engaged by Calpine, with the approval of the Calpine Board, to assist the Calpine Board in its consideration of potential strategic alternatives, including a potential sale of Calpine. Lazard was selected by the Calpine Board after considering information regarding Lazard and other potential financial advisors provided by such potential financial advisors and based on Lazard’s qualifications, expertise and reputation in investment banking and mergers and acquisitions generally and in the independent power producer industry specifically, as well as its familiarity with the business of Calpine.

 

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On March 24, 2017, the Calpine Board convened a special meeting telephonically to, among other things, further evaluate potential strategic alternatives that could be available to Calpine. Members of Calpine’s senior management and representatives of White & Case and Lazard also attended this meeting. At this meeting, Lazard discussed with the Calpine Board, among other things, preliminary financial matters regarding Calpine, including in the context of a potential transaction, and potential strategic alternatives for Calpine, including continuing to operate as a standalone public company, a potential sale of Calpine to a strategic acquiror or financial sponsor and a range of financing and other opportunities with respect to Calpine’s geothermal power plant assets located in Sonoma County and Lake County, California, which we refer to as the “geysers assets.” During this discussion, representatives of Lazard also provided the Calpine Board with an overview of 25 potential financial sponsors and four potential strategic counterparties that might be contacted to gauge their respective interest in acquiring Calpine or exploring a range of financing and other opportunities with respect to the geysers assets, in addition to two additional parties that could be interested in serving as potential sources of equity financing, and a potential prioritization of outreach to such parties. Representatives of Lazard noted that such parties were identified based on certain criteria, including the applicable party’s ability to fund the requisite equity commitment, equity syndication capabilities, industry knowledge and experience, merchant generation appetite, limited market power issues, potential geothermal generation interest, ability to achieve an appropriate level of returns, ability to analyze an acquisition of Calpine independently and expeditiously, and reputational, behavioral and other considerations. Also at this meeting, a representative of White & Case again provided an overview to the Calpine Board of its fiduciary duties in the context of a potential sale transaction, including the duties relevant in the context of a potential sale transaction, and reiterated the importance of independent director oversight in transactions in which members of management may be employed by an acquirer, and Mr. Rauf reviewed with the Calpine Board certain updated financial information regarding Calpine. Following further discussion of potential strategic alternatives, including a potential sale transaction, the consensus of the Calpine Board was that, given concerns with maintaining confidentiality, Calpine’s senior management should work with Lazard to contact a limited number of financial sponsors that were known to invest in the industries in which Calpine operates and could consummate a transaction requiring a substantial equity commitment consistent with the outreach prioritization reviewed by Lazard, to gauge their respective interests in acquiring Calpine and obtain preliminary indications of interest. The Calpine Board also continued discussing Calpine senior management’s recent interactions with, and assessments of, other independent power producers and competitive power affiliates of utilities as discussed at the February 15, 2017 meeting of the Calpine Board, including that (a) such interactions and assessments did not lead to any near-term opportunities, (b) seeking an opportunity with certain potential strategic counterparties would not advance Calpine’s strategic objectives or likely would not be value accretive for Calpine’s stockholders or such counterparty and (c) an acquisition of Calpine by an integrated utility group was unlikely given that, among other factors, Calpine’s current debt profile could adversely impact such group’s credit ratings. Notwithstanding such recent interactions and assessments, the Calpine Board directed Mr. Hill to continue contacting certain potential strategic counterparties to gauge their interest in a potential transaction involving Calpine.

Beginning on April 2, 2017, Lazard, consistent with the Calpine Board’s directives and after consultation with Calpine’s senior management, contacted seven financial sponsors, including Energy Capital Partners, to gauge their respective interests in a potential transaction involving Calpine. Of such financial sponsors, Energy Capital Partners and three other financial sponsors executed confidentiality agreements with Calpine, which we refer to as “Party A,” “Party B” and “Party C,” respectively, with the three remaining financial sponsors declining to continue evaluating a potential transaction involving Calpine prior to negotiation of the terms of a confidentiality agreement. One of the three remaining financial sponsors that declined to continue evaluating a potential transaction involving Calpine, later indicated that it may be interested in serving as a potential source of equity financing. Each of the executed confidentiality agreements contains, in addition to customary limitations regarding the use and disclosure of Calpine’s confidential information, standstill provisions that prohibit the counterparty and certain of their respective representatives from taking certain actions during the 12-month period after the date of signing of the applicable confidentiality agreement, including prohibitions on acquiring, agreeing to acquire or proposing to acquire securities of Calpine, rights to acquire securities of Calpine, or any right to vote or direct the voting of securities of Calpine or any assets of Calpine. Although the executed

 

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confidentiality agreement with Party B provides that such standstill obligations would terminate upon, among other things, public announcement of the merger, none of the executed confidentiality agreements contains a “don’t ask, don’t waive” restriction and each of Party A, Party B and Party C were in fact contacted during the go-shop period.

During the period from April 17, 2017 through April 19, 2017, following the execution of confidentiality agreements, consistent with the Calpine Board’s directives and after consultation with Calpine’s senior management, representatives of Lazard distributed to each of Energy Capital Partners, Party A, Party B and Party C a process letter, which requested submission of preliminary, non-binding indications of interest no later than May 5, 2017 and included an evaluation package containing financial information regarding Calpine’s business. Representatives of Calpine, including Mr. Cassidy and members of Calpine’s senior management, held management presentations with such parties to discuss Calpine’s business, management and prospects. Calpine also granted such parties access to a virtual data room that contained preliminary, non-public legal, financial and operations-related due diligence materials of Calpine and that was updated from time to time during the strategic alternatives review process. In addition, representatives of Calpine’s management, together with representatives of Lazard, continued to engage in discussions with representatives of such parties regarding the strategic alternatives review process and such parties’ continuing interest in acquiring Calpine.

On April 24, 2017, Lazard provided an update to Calpine’s senior management regarding the status of the strategic alternatives review process, including discussions and other communications with Energy Capital Partners, Party A, Party B and Party C. During this update, Lazard discussed with Calpine’s senior management certain perspectives regarding, among other things, the possibility of introducing financial sponsors to certain potential sources of equity financing to facilitate such financial sponsors’ efforts to raise capital in connection with a potential transaction involving Calpine. In that regard, representatives of Lazard provided an overview of a potential source of equity financing, which we refer to as “Potential Equity Financing Party,” and which was previously discussed with the Calpine Board. Lazard then discussed whether it would be beneficial at this time to contact other potential sources of equity financing. After such discussion, it was determined that, subject to consulting with Mr. Cassidy, Lazard should contact Potential Equity Financing Party to gauge its interest in acquiring Calpine or providing equity financing to a financial sponsor in connection with a potential transaction involving Calpine.

On April 24, 2017 and April 25, 2017, consistent with the discussions that occurred earlier on April 24, 2017 and after consulting with Mr. Cassidy, representatives of Lazard contacted Potential Equity Financing Party. Potential Equity Financing Party indicated that it would not be interested in acquiring Calpine but would be interested in providing equity financing to a financial sponsor in connection with a potential transaction involving Calpine. Potential Equity Financing Party did not enter into a confidentiality agreement with Calpine at this time.

On May 4, 2017, Party C informed Lazard that it did not intend to submit an indicative proposal to acquire Calpine.

On May 5, 2017, Energy Capital Partners and Party A submitted preliminary, non-binding indications of interest to acquire 100% of Calpine. The prices per share of Calpine common stock at which Energy Capital Partners and Party A indicated that they would be interested in engaging in such a transaction were $14.80 and $13.50 per share of Calpine common stock in cash, respectively. Each of the indications of interest included, among other things, a description of such financial sponsors’ respective preliminary financing plans, and Energy Capital Partners’ indication of interest requested that Calpine grant Energy Capital Partners an exclusivity period of six to eight weeks to arrange its sources of equity financing. On that same date, Party B informed Lazard that it did not intend to submit an indicative proposal to acquire Calpine.

During the period commencing on May 6, 2017 through May 9, 2017, at the direction of Calpine’s senior management, representatives of Lazard contacted each of Energy Capital Partners and Party A requesting that

 

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both financial sponsors increase the proposed per share purchase price as reflected in their respective indications of interests in advance of the Calpine Board’s meeting on May 9, 2017.

On May 8, 2017, Energy Capital Partners and Party A submitted revised indicative prices of $15.05 and $14.25 per share of Calpine common stock, respectively.

On May 9, 2017, the Calpine Board convened a special meeting in person to receive an update on the strategic alternatives review process. Members of Calpine’s senior management and representatives of White & Case and Lazard also attended this meeting. At this meeting, a representative of White & Case again provided an overview to the Calpine Board of its fiduciary duties, including the duties relevant in the context of a potential sale transaction, and reiterated the importance of independent director oversight in transactions in which members of management may be employed by an acquiror. Representatives of Lazard then provided an update regarding the strategic alternatives review process, including, among other things, a summary of the indications of interest received from Energy Capital Partners and Party A and such financial sponsors’ respective preliminary financing plans. Representatives of Lazard also noted that other potential counterparties that were contacted in connection with the strategic alternatives review process had not submitted indicative proposals, though certain of such parties expressed an interest in potentially acquiring certain of Calpine’s assets or participating in a transaction as a potential source of financing. Lazard then discussed with the Calpine Board updated preliminary financial matters regarding Calpine and preliminary financial aspects of the indications of interest received from Energy Capital Partners and Party A. The Calpine Board, together with members of Calpine’s senior management and representatives of Lazard, discussed Calpine senior management’s updated views regarding the future financial performance of Calpine and the potential impact of a credit ratings downgrade on the ability of financial sponsors to arrange financing in connection with a transaction involving Calpine. Lazard also discussed with the Calpine Board certain other potential strategic alternatives involving Calpine, including continuing to operate Calpine on a standalone basis, monetizing the geysers assets and effecting a Reverse Morris Trust transaction or a business combination with certain of the potential strategic counterparties discussed at the Calpine Board’s February 15, 2017 meeting. Mr. Hill also updated the Calpine Board on recent discussions with certain potential strategic counterparties. The Calpine Board, together with members of Calpine’s senior management and representatives of Lazard, again discussed the current public market for shares of Calpine common stock, including that uncertainty about regulatory and energy market dynamics affecting the independent power producer industry had caused traditional investors in the sector to lose confidence in the potential for growth, which resulted in lower valuation multiples for independent power producers, including Calpine, and that the limited number of publicly traded companies in the industry and the decline in the total investible market capitalization of companies in the sector were impediments to traditional long-term investors continuing to invest in the industry, all of which negatively affected the price of shares of Calpine common stock, as did energy market prices generally. At the conclusion of the meeting, the Calpine Board held an executive session with only members of the Calpine Board, W. Thaddeus Miller, Executive Vice President, Chief Legal Officer and Secretary, and representatives of White & Case present, during which the attendees discussed potential next steps, including whether the Calpine Board should grant an exclusivity period to Energy Capital Partners as requested by Energy Capital Partners. The consensus of the Calpine Board was to continue exploring a potential transaction with Energy Capital Partners and Party A, but require that Energy Capital Partners further develop its financing plan, that Party A submit an improved proposal on price after it had the opportunity to conduct additional due diligence, and that each of Energy Capital Partners and Party A provide their respective strategies for approaching the credit rating agencies regarding a potential transaction involving Calpine.

Following the Calpine Board meeting, on May 9, 2017, Lazard, consistent with the Calpine Board’s directives, contacted Energy Capital Partners and Party A to outline next steps and, on May 10, 2017, provided to each of Energy Capital Partners and Party A a process letter requesting revised indications of interest and further details of each party’s planned equity syndication, debt financing and rating agency strategies by no later than May 22, 2017. Following the distribution of such process letters, Energy Capital Partners and Party A were

 

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provided additional access to Calpine’s management for diligence calls and access to additional non-public legal, financial and operations-related due diligence materials of Calpine in the virtual data room.

On May 10, 2017, The Wall Street Journal published an article speculating that Calpine was exploring a sale transaction and was working with Lazard in seeking potential acquirors. Following publication of The Wall Street Journal article and other similar news articles, 14 additional parties, including private equity and infrastructure funds, closely held private companies and strategic parties, contacted Calpine or Lazard to express potential interest in acquiring all or a portion of Calpine. The Calpine Board authorized Calpine’s senior management and Lazard to respond to those expressions of interest. Subsequently, six of those parties, including Access, requested a confidentiality agreement, of which one potential counterparty, which we refer to as “Party D,” and Access executed confidentiality agreements and subsequently received an evaluation package, an in-person management presentation and access to the virtual data room. Such executed confidentiality agreements are consistent with the confidentiality agreements described above. On May 24, 2017, Party D informed Lazard that it did not intend to submit an indicative proposal to acquire Calpine, and, on May 26, 2017, Access informed Lazard that it did not intend to submit an indicative proposal to acquire Calpine. Each of Party D and Access indicated that it may be interested in participating in a transaction involving Calpine as a potential source of equity financing.

Between May 22, 2017 and May 30, 2017, after ongoing discussions among representatives of Lazard and each of Energy Capital Partners and Party A regarding, among other things, Energy Capital Partners’ and Party A’s respective indicative proposals, financing plans, credit rating agency strategies and ongoing due diligence reviews, and after Calpine provided Energy Capital Partners and Party A with updated financial information regarding Calpine, Energy Capital Partners and Party A again submitted indicative proposals, together with an overview of their respective equity syndication and credit rating agency strategies. Energy Capital Partners increased its all-cash indicative price from $15.05 to $15.25 per share of Calpine common stock contingent upon Calpine granting Energy Capital Partners an exclusivity period of eight weeks. Party A reaffirmed its previous all-cash indicative price of $14.25 per share of Calpine common stock.

On May 31, 2017, the Calpine Board convened a special meeting telephonically to receive an update on the strategic alternatives review process. Members of Calpine’s senior management and representatives of White & Case and Lazard also attended this meeting. At this meeting, a representative of White & Case again provided an overview to the Calpine Board of its fiduciary duties, including the duties relevant in the context of a potential sale transaction, and reiterated the importance of independent director oversight in transactions in which members of management may be employed by the potential acquiror. Mr. Miller and representatives of White & Case then discussed with the Calpine Board certain existing and prior relationships of employees of Calpine and White & Case with Party A, Energy Capital Partners and Potential Equity Financing Party, which was in discussions with Energy Capital Partners regarding potential equity financing, as previously raised and discussed from time to time with Mr. Cassidy and members of Calpine’s senior management. Representatives of Lazard then provided an update regarding the strategic alternatives review process, including, among other things, a summary of Energy Capital Partners’ and Party A’s revised indicative proposals, preliminary financing plans and credit rating agency strategies, and noted that no other potential counterparties that contacted Calpine or Lazard following market rumors had submitted indicative proposals. Representatives of Lazard also noted for the Calpine Board that Energy Capital Partners’ revised indicative proposal was contingent upon Calpine granting Energy Capital Partners an exclusivity period of eight weeks. The prior relationships discussed by the Calpine Board included that (a) Messrs. Fusco and Miller and Doug Kimmelman, a senior partner of Energy Capital Partners, previously worked in different divisions of Goldman, Sachs & Co., which we refer to as “Goldman Sachs,” and worked together in connection with Goldman Sachs’ partnership with Baltimore Gas and Electric Company to form Constellation Power Source, Inc. and Goldman Sachs’ investment in Orion Power Holdings, Inc., which we refer to as “Orion Power,” (b) Messrs. Fusco and Miller previously worked with Tyler Reeder and Rahul Advani, both partners of Energy Capital Partners, at Orion Power, (c) Messrs. Fusco and Miller previously worked with Mr. Reeder while consultants to Texas Pacific Group, (d) Messrs. Fusco, Hill, Miller and Reeder previously worked together at Texas Genco LLC and (e) Messrs. Hill and Reeder previously worked together at NRG Energy, Inc. after it acquired Texas Genco LLC.

 

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Lazard then discussed with the Calpine Board updated preliminary financial matters regarding Calpine and updated preliminary financial aspects of the revised indications of interest received from Energy Capital Partners and Party A. The Calpine Board, together with members of Calpine’s senior management and representatives of Lazard, then discussed various considerations relating to Energy Capital Partners’ request for an exclusivity period, including, among other things, Energy Capital Partners’ indicative proposal relative to Party A’s indicative proposal and Energy Capital Partners’ preliminary financing plan and credit rating strategy, the lack of any additional indicative proposals as a result of the market rumors (whether from strategic acquirors or financial sponsors), the challenges of two potential parties approaching the credit rating agencies regarding a potential transaction involving Calpine, the challenges of two parties simultaneously assembling a co-investor group given the likely overlap in potential sources of equity financing and other market, business and strategic factors. At the conclusion of this meeting, the Calpine Board held an executive session with only members of the Calpine Board, Mr. Miller and representatives of White & Case present, during which the attendees discussed potential next steps, including the viability of other potential strategic alternatives and whether the Calpine Board should grant an exclusivity period to Energy Capital Partners in light of various factors discussed during the meeting. The Calpine Board then held an executive session with only the independent members of the Calpine Board and representatives of White & Case present. During such executive session, a representative of White & Case discussed with the independent members of the Calpine Board the importance of agreeing on a price for shares of Calpine common stock in any sale transaction before permitting Calpine’s management to engage in any discussion with Energy Capital Partners regarding compensation arrangements. No such compensation discussions occurred prior to announcement of the merger. The consensus of the Calpine Board was to continue exploring a potential transaction with Energy Capital Partners and, in furtherance thereof, to grant exclusivity to Energy Capital Partners on terms that would not preclude the consideration by the Calpine Board of unsolicited offers.

Following the May 31, 2017 meeting of the Calpine Board, representatives of Lazard communicated to Energy Capital Partners that the Calpine Board had determined to negotiate a potential transaction with Energy Capital Partners on an exclusive basis for a 45-day period. On behalf of Calpine, White & Case thereafter sent an initial draft of an exclusivity agreement to Latham & Watkins LLP, outside legal counsel to Energy Capital Partners, which we refer to as “Latham & Watkins.” The parties subsequently negotiated the terms of an exclusivity agreement and executed an exclusivity agreement, dated June 2, 2017, which did not preclude the consideration by the Calpine Board of unsolicited offers. The exclusivity agreement was approved unanimously by the Calpine Board. From the date of execution of the exclusivity agreement (including subsequent extensions of the exclusivity period) through August 17, 2017, representatives of Calpine, Energy Capital Partners and their respective advisors held numerous discussions regarding the terms of a potential transaction involving Calpine and Energy Capital Partners and Energy Capital Partners’ progress on its equity syndication efforts, the status of its confirmatory due diligence and the status of its credit rating agency strategy and outreach, in addition to the contacts described below.

On June 1, 2017, Messrs. Hill and Reeder, informally met at an industry conference, during which meeting Messrs. Hill and Reeder discussed potential next steps, including Energy Capital Partners’ outreach to potential co-investors.

On June 5, 2017, representatives of Calpine, Energy Capital Partners and their respective advisors met in New York City to discuss Energy Capital Partners’ equity syndication, confirmatory due diligence and credit rating agency advisory processes. Following the June 5, 2017 meeting, Energy Capital Partners was provided additional access to Calpine’s management and a second virtual data room in response to Energy Capital Partners’ additional due diligence requests. During the due diligence process, Energy Capital Partners, in addition to other participants in the strategic alternatives review process, inquired whether Messrs. Hill, Miller and Rauf would be willing to remain as members of Calpine’s senior management if such party were to consummate an acquisition of Calpine, to which Messrs. Hill, Miller and Rauf responded that they would be willing to discuss post-closing employment arrangements at the appropriate time. Energy Capital Partners has not discussed, and none of the prior participants in the strategic alternatives review process discussed, with Calpine’s senior management the terms of any proposed retention post-closing.

 

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On June 9, 2017, Bloomberg reported that Calpine had received bids from certain financial sponsors, which did not include Energy Capital Partners.

On June 20, 2017, SparkSpread, a publication that covers U.S. and European energy markets, reported that Energy Capital Partners had built a position in, and was bidding to acquire, Calpine.

On June 29, 2017, the Calpine Board convened a special meeting telephonically to receive an update on the evaluation of a potential transaction involving Energy Capital Partners. Members of Calpine’s senior management and representatives of White & Case and Lazard also attended this meeting. At this meeting, a representative of White & Case again provided an overview to the Calpine Board of its fiduciary duties, including the duties relevant in the context of a potential sale transaction, and reiterated the importance of independent director oversight in transactions in which members of management may be employed by the potential acquiror. Representatives of Lazard then updated the Calpine Board on, among other things, Energy Capital Partners’ progress on its equity syndication efforts and the status of discussions with credit rating agencies. Representatives of White & Case also reviewed with the Calpine Board the exclusivity agreement that had been entered into with Energy Capital Partners and certain provisions of a draft merger agreement proposed to be sent to Energy Capital Partners relating to, among other things, the parameters of the go-shop and non-solicitation covenants, obligations and risk allocation with respect to regulatory approvals and credit ratings, the circumstances under which termination fees would be payable by Calpine or Parent, and the amounts of such termination fees.

On July 5, 2017, on behalf of Calpine, representatives of White & Case sent to representatives of Latham & Watkins an initial draft of the merger agreement.

On July 7, 2017, on behalf of Calpine, representatives of White & Case sent to representatives of Latham & Watkins an initial draft of Calpine’s confidential disclosure letter.

On July 10, 2017, the Calpine Board convened a special meeting telephonically to receive an update on the evaluation of a potential transaction involving Energy Capital Partners. Members of Calpine’s senior management and representatives of White & Case and Lazard also attended this meeting. At this meeting, representatives of White & Case again provided an overview to the Calpine Board of its fiduciary duties, including the duties relevant in the context of a potential sale transaction, and reiterated the importance of independent director oversight in transactions in which members of management may be employed by the potential acquiror. Representatives of Lazard provided an update regarding, among other things, Energy Capital Partners’ progress on its equity syndication efforts and the status of discussions with credit rating agencies. Lazard then discussed with the Calpine Board updated preliminary financial matters regarding Calpine and updated preliminary financial aspects of Energy Capital Partners’ indicative proposal. The Calpine Board, together with members of Calpine’s senior management and representatives of Lazard and White & Case, then discussed the possibility that Energy Capital Partners would request an extension of the exclusivity period, which was set to expire on July 17, 2017, in order to continue arranging its equity financing. The Calpine Board also discussed the advisability of establishing a “Transaction Committee” to aid the Calpine Board in overseeing the conduct of the strategic alternatives review process and make decisions in connection with the conduct of such process between meetings of the Calpine Board. The Calpine Board then resolved to establish a Transaction Committee consisting of Mr. Cassidy, W. Benjamin Moreland and Denise M. O’Leary, each of whom is an independent member of the Calpine Board. Throughout the Calpine Board’s evaluation of a potential transaction involving Energy Capital Partners, the Transaction Committee was regularly consulted and updated on any material matters relating to such evaluation, and the Transaction Committee provided direction to Calpine’s senior management and outside advisors prior to any decisions that were made that did not require approval of the full Calpine Board.

On July 11, 2017, representatives of Latham & Watkins provided to representatives of White & Case a revised draft of the draft merger agreement that was initially provided by White & Case on July 5, 2017. During the period from July 11, 2017 through August 17, 2017, representatives of Calpine and Energy Capital Partners, including members of the Transaction Committee, Messrs. Hill, Miller, Reeder and Andrew Singer, a partner and general counsel of Energy Capital Partners, together with representatives of Calpine’s and Energy Capital

 

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Partners’ respective legal and financial advisors, held numerous discussions regarding the merger agreement, disclosure schedules and financing documents and representatives of White & Case and Latham & Watkins exchanged drafts of the merger agreement and confidential disclosure letter.

On July 13, 2017, SparkSpread reported that Calpine had narrowed the field of bidders to two parties, one of which was Energy Capital Partners.

On July 15, 2017, the Transaction Committee convened a status update meeting telephonically. Members of Calpine’s senior management and representatives of White & Case and Lazard also attended this meeting. At this meeting, representatives of Lazard updated the Transaction Committee on the status of Energy Capital Partners’ equity syndication efforts. Representatives of White & Case then reviewed with the Transaction Committee certain open business points in the draft merger agreement being negotiated with Energy Capital Partners relating to, among other things, the parameters of the go-shop and non-solicitation covenants, obligations and risk allocation with respect to regulatory approvals and credit ratings, the circumstances under which termination fees would be payable by Calpine or Parent, and the amounts of such termination fees. The Transaction Committee, together with members of Calpine’s senior management and representatives of Lazard and White & Case, then discussed various open business points and Energy Capital Partners’ recent request for a three-week extension of the exclusivity period granted by Calpine to Energy Capital Partners in order to continue arranging its equity financing. The Transaction Committee then approved an extension of the exclusivity period to July 31, 2017.

On July 17, 2017, Calpine and Energy Capital Partners agreed to extend the exclusivity period to July 31, 2017.

On July 22, 2017, the Transaction Committee convened a status update meeting telephonically. Members of Calpine’s senior management and representatives of White & Case and Lazard also attended this meeting. At this meeting, Messrs. Hill and Miller provided an update regarding the status of the potential transaction, including Energy Capital Partners’ equity syndication efforts and certain open business points in the draft merger agreement being negotiated with Energy Capital Partners. The Transaction Committee, together with members of Calpine’s senior management and representatives of Lazard and White & Case, then discussed various open business points.

Also on July 22, 2017, representatives of Latham & Watkins provided to representatives of White & Case an initial draft of the engagement letter with Barclays in connection with the amendment to the existing revolving credit agreement, which we refer to as the “Barclays engagement letter.” During the period from July 22, 2017 through August 17, 2017, representatives of Calpine and Energy Capital Partners, including members of the Transaction Committee, Messrs. Hill, Miller, Reeder and Singer, together with representatives of Calpine’s and Energy Capital Partners’ respective legal and financial advisors, held discussions regarding, and representatives of White & Case and Latham & Watkins exchanged drafts of, the Barclays engagement letter.

On July 26, 2017, Bloomberg reported a potential announcement of an Energy Capital Partners acquisition of Calpine to occur as soon as the first week of August.

On July 28, 2017, Calpine issued a press release and held its second quarter earnings call regarding its second quarter financial results, in which Mr. Hill, at the direction of the Calpine Board, disclosed that it was exploring strategic alternatives. Although Calpine received additional in-bound inquiries, as a result of the recent market rumors and Calpine’s disclosure of the strategic alternative review process, no additional indications of interest were received.

Later on July 28, 2017, the Calpine Board convened a special meeting telephonically to receive an update on the evaluation of a potential transaction involving Energy Capital Partners. Members of Calpine’s senior management and representatives of White & Case and Lazard also attended this meeting. At this meeting, representatives of Lazard provided an update regarding Energy Capital Partners’ equity syndication efforts and

 

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members of Calpine’s senior management provided an update regarding the status of discussions with credit rating agencies. Representatives of White & Case then reviewed with the Calpine Board certain open business points in the draft merger agreement being negotiated with Energy Capital Partners relating to, among other things, the parameters of the go-shop and non-solicitation covenants, obligations and risk allocation with respect to regulatory approvals and credit ratings, the circumstances under which termination fees would be payable by Calpine or Parent, and the amounts of such termination fees. The Calpine Board, together with members of Calpine’s senior management and representatives of Lazard and White & Case, then discussed various open business points and Energy Capital Partners’ recent request for an extension of the exclusivity period granted by Calpine to Energy Capital Partners in order to continue arranging its equity financing to the week of August 14, 2017. The consensus of the Calpine Board was to permit Calpine’s management to extend the exclusivity period by one to two weeks.

Also on July 28, 2017, representatives of Latham & Watkins provided to representatives of White & Case initial drafts of the limited guarantee and equity commitment letter. During the period from July 28, 2017 through August 17, 2017, representatives of Calpine and Energy Capital Partners, including members of the Transaction Committee, Messrs. Hill, Miller, Reeder and Singer, together with representatives of Calpine’s and Energy Capital Partners’ respective legal and financial advisors, held discussions regarding, and representatives of White & Case and Latham & Watkins exchanged drafts of, the limited guarantee and equity commitment letter.

On July 31, 2017, Calpine and Energy Capital Partners agreed to extend the exclusivity period to August 16, 2017.

On August 1, 2017, representatives of Latham & Watkins provided initial drafts of the Parent amended and restated limited partnership agreement, which we refer to as the “Parent LPA,” form subscription agreement and bridge commitment letter to White & Case. During the period from August 1, 2017 through August 17, 2017, representatives of Calpine and Energy Capital Partners, including members of the Transaction Committee, Messrs. Hill, Miller, Reeder and Singer, together with representatives of Calpine’s and Energy Capital Partners’ respective legal and financial advisors, held discussions regarding, and representatives of White & Case and Latham & Watkins exchanged drafts of, the Parent LPA, subscription agreements and bridge commitment letter.

On August 7, 2017, the Transaction Committee convened a status update meeting telephonically. Members of Calpine’s senior management and representatives of White & Case and Lazard also attended this meeting. At this meeting, representatives of Lazard updated the Transaction Committee on the status of Energy Capital Partners’ equity syndication efforts and Mr. Hill and representatives of Lazard updated the Transaction Committee on the status of ongoing discussions with principals of Energy Capital Partners, including recent discussions among Messrs. Hill, Miller, Cassidy, Reeder, Singer and other representatives of Calpine and Energy Capital Partners regarding open business points. Mr. Hill and Lazard also discussed with the Transaction Committee potentially exploring whether Energy Capital Partners could offer any additional value to Calpine’s stockholders relative to its indicative proposal of $15.25 per share of Calpine common stock. Representatives of White & Case then reviewed with the Transaction Committee certain open business points in the draft merger agreement being negotiated with Energy Capital Partners relating to, among other things, the parameters of the go-shop and non-solicitation covenants, obligations and risk allocation with respect to regulatory approvals and credit ratings, the circumstances under which termination fees would be payable by Calpine or Parent, and the amounts of such termination fees. The Transaction Committee, together with members of Calpine’s senior management and representatives of Lazard and White & Case, then discussed various open business points and determined to explore whether Energy Capital Partners could offer any additional value to Calpine’s stockholders.

On August 9, 2017, the Calpine Board convened a special meeting telephonically to receive an update on the evaluation of a potential transaction involving Energy Capital Partners. Members of Calpine’s senior management and representatives of White & Case and Lazard also attended this meeting. Representatives of

 

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Lazard updated the Calpine Board on the status of Energy Capital Partners’ equity syndication efforts and Messrs. Hill and Miller and representatives of Lazard updated the Calpine Board on the status of ongoing discussions with principals of Energy Capital Partners, including recent discussions among Messrs. Cassidy, Hill, Miller and other representatives of Calpine’s senior management and Messrs. Reeder, Singer and other representatives of Energy Capital Partners regarding open business points, and Calpine’s exploration as to whether Energy Capital Partners could offer any additional value to Calpine’s stockholders. Representatives of White & Case then reviewed with the Calpine Board certain open business points in the draft merger agreement being negotiated with Energy Capital Partners relating to, among other things, the parameters of the go-shop and non-solicitation covenants, obligations and risk allocation with respect to regulatory approvals and credit ratings, the circumstances under which termination fees would be payable by Calpine or Parent, and the amounts of such termination fees. The Calpine Board, together with members of Calpine’s senior management and representatives of Lazard and White & Case, then discussed various open business points and Calpine’s exploration as to whether Energy Capital Partners could offer any additional value to Calpine’s stockholders, including the initial view expressed by Energy Capital Partners that seeking approval for an increase in Energy Capital Partners’ indicative proposal from potential co-investors could destabilize Energy Capital Partners’ equity syndication efforts and that, notwithstanding recent market rumors, Calpine had not received any recent communications from Calpine’s stockholders regarding potential price per share in a transaction involving Calpine. The consensus of the Calpine Board was to continue exploring a potential transaction with Energy Capital Partners on the basis of Energy Capital Partners’ indicative proposal of $15.25 per share of Calpine common stock but that the Transaction Committee, together with Calpine’s senior management and Lazard, should continue to evaluate whether to continue exploring Energy Capital Partners’ ability to offer any additional value to Calpine’s stockholders and the effect that would have on a potential transaction with Energy Capital Partners.

Following the August 9, 2017 Calpine Board meeting, the Transaction Committee convened a status update meeting telephonically. Members of Calpine’s senior management and representatives of White & Case and Lazard also attended this meeting. Members of Calpine’s senior management updated the Transaction Committee on a discussion held after the Calpine Board’s meeting earlier that day among Messrs. Hill, Miller and other members of Calpine’s senior management and Messrs. Reeder, Singer and other representatives of Energy Capital Partners, which discussion included Energy Capital Partners’ perspectives regarding open business points, which included a willingness generally to accept risk with respect to regulatory approvals and credit ratings, and Calpine’s exploration as to whether Energy Capital Partners could offer any additional value to Calpine’s stockholders. Members of Calpine’s senior management and representatives of Lazard noted Energy Capital Partners’ indication that it could consult with potential co-investors regarding an increase in Energy Capital Partners’ indicative proposal but that doing so would delay and might destabilize Energy Capital Partners’ equity syndication efforts. Representatives of Lazard discussed with the Transaction Committee the potential destabilization in Energy Capital Partners’ equity syndication efforts. After further discussion, the consensus of the Transaction Committee was to continue exploring a potential transaction with Energy Capital Partners on the basis of Energy Capital Partners’ indicative proposal of $15.25 per share of Calpine common stock but seeking terms that would be more beneficial to Calpine, including the circumstances under which such termination fees would be payable by Calpine or Parent and the amounts of such termination fees.

Also on August 9, 2017, MergerMarket reported that Calpine and Energy Capital Partners were working to finalize the capital structure of a potential buyout. Prior to announcement of the merger on August 18, 2017, various news articles were published regarding a potential transaction involving Calpine and Energy Capital Partners. Although Calpine received in-bound inquiries as a result of the recent market rumors and Calpine’s disclosure of the strategic alternative review process, no additional indications of interest were received.

On August 16, 2017, the Calpine Board convened a regularly scheduled meeting in person during which the Calpine Board evaluated the proposed merger. Members of Calpine’s senior management and representatives of White & Case and Lazard also attended a portion of this meeting. During this meeting, representatives of White & Case again provided an overview to the Calpine Board of the Calpine Board’s fiduciary duties to Calpine’s stockholders, including the Calpine Board’s duties in connection with a potential sale of Calpine.

 

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Representatives of Lazard reviewed with the Calpine Board the terms of the Barclays engagement letter and representatives of White & Case reviewed with the Calpine Board, among other things, the proposed terms and conditions of the merger agreement in detail. Also at this meeting, Lazard reviewed with the Calpine Board updated preliminary financial aspects of the merger consideration. The Calpine Board, together with members of Calpine’s senior management and representatives of Lazard and White & Case, then discussed the proposed terms and conditions of the merger agreement and financial aspects of the merger consideration, noting that open business points in the merger agreement relating to, among other things, risk allocation with respect to regulatory approvals and credit ratings, the circumstances under which termination fees would be payable by Calpine or Parent and the amounts of such termination fees, were resolved in a manner that, in the aggregate, would be favorable to Calpine. Also at this meeting, the Calpine Board discussed certain relationships with Lazard and various participants in the strategic alternatives review process of which the Calpine Board was previously made aware prior to this meeting and the May 9, 2017 meeting of the Calpine Board and determined that such relationships were not material to the Calpine Board’s evaluation of strategic alternatives. Lazard had previously informed White & Case that the financial advisory business of Lazard was not engaged by, and did not receive any compensation from, Energy Capital Partners during the two years prior to August 16, 2017, which information White & Case relayed to the Calpine Board on behalf of Lazard.

On August 17, 2017, the Calpine Board convened the second day of its regularly scheduled meeting in person during which the Calpine Board further evaluated the proposed merger. During this meeting, representatives of White & Case again provided an overview to the Calpine Board of the Calpine Board’s fiduciary duties to Calpine’s stockholders, including the Calpine Board’s duties in connection with a potential sale of Calpine. Also at this meeting, Lazard reviewed with the Calpine Board its financial analysis of the merger consideration and rendered an oral opinion, confirmed by delivery of a written opinion dated August 17, 2017, to the Calpine Board to the effect that, as of that date and based upon and subject to the assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of review undertaken by Lazard as set forth in its written opinion, the merger consideration to be paid to holders of shares of Calpine common stock (other than holders of certain excluded shares) in the merger was fair, from a financial point of view, to holders of shares of Calpine common stock (other than holders of certain excluded shares). In addition, the Calpine Board carefully considered the proposed merger consideration, any risks related to the terms and conditions of the merger agreement, the prospects of continuing to operate Calpine as a stand-alone publicly-held entity, and the views expressed by members of the Calpine Board during the meeting, in addition to the other reasons to approve the merger agreement and countervailing factors described in the section entitled “—Recommendation of the Calpine Board; Reasons for the Merger” beginning on page 51 of this proxy statement.

After further discussions with Calpine’s senior management and legal and financial advisors, and in light of the reasons considered, the Calpine Board unanimously (a) determined that the terms of the merger agreement and the transactions contemplated thereby, including the merger, are advisable and fair to, and in the best interests of, Calpine and its stockholders, (b) approved and declared advisable the form and terms of the merger agreement and the transactions contemplated thereby, including the merger, (c) resolved that the merger agreement be submitted to the stockholders of Calpine for adoption and (d) resolved to recommend to such stockholders that they vote in favor of adoption of the merger agreement and the transactions contemplated thereby, including the merger.

During the evening of August 17, 2017, representatives of Calpine, White & Case, Energy Capital Partners and Latham & Watkins finalized the merger agreement and each of Calpine, Parent and Merger Sub executed and delivered the merger agreement, effective as of August 17, 2017.

On August 18, 2017, Calpine and Energy Capital Partners issued a joint press release announcing the execution of the merger agreement. The press release indicated that Energy Capital Partners expected that the current Calpine management team would remain in place. Energy Capital Partners has not discussed with Calpine’s senior management the terms of any proposed retention post-closing. Also on August 18, 2017, Moody’s and S&P affirmed Calpine’s ratings. Moody’s revised its rating outlook for Calpine from stable to negative.

 

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The merger agreement permits Calpine and its advisors to actively solicit and negotiate alternative transaction proposals from third parties during the go-shop period (see the section entitled “The Merger Agreement—Terms of the Merger Agreement—Go-Shop Period; Solicitation of Alternative Transaction Proposals” beginning on page 108 of this proxy statement). During the go-shop period, Lazard, under the direction of the Calpine Board, undertook a broad solicitation effort by contacting 65 potential counterparties comprised of 25 strategic parties, six pension funds and sovereign wealth funds, 30 infrastructure firms and financial sponsors and four family offices and insurance companies, which outreach included potential counterparties previously contacted or identified by Lazard. As a result of this solicitation effort, only one financial sponsor, which we refer to as “Party E,” entered into a confidentiality agreement with Calpine. Party E subsequently received a bid process letter and an evaluation package but on September 25, 2017, informed representatives of Lazard that Party E would not pursue a transaction involving Calpine.

Recommendation of the Calpine Board; Reasons for the Merger

In evaluating the merger agreement, the merger and the other transactions contemplated by the merger agreement, the Calpine Board consulted with Calpine’s senior management and Calpine’s outside legal advisor and financial advisor. In determining that the terms of the merger agreement and the transactions contemplated by the merger agreement, including the merger, are advisable and fair to, and in the best interests of, Calpine and its stockholders and in recommending to such stockholders that they vote in favor of adoption of the merger agreement and the transactions contemplated thereby, including the merger, the Calpine Board considered a number of factors, including the following, which are not intended to be exhaustive and are not presented in any relative order of importance:

Financial Terms; Certainty of Value

 

    The merger consideration of $15.25 per share of Calpine common stock:

 

    represented a premium of approximately 51% over the closing price per share of Calpine common stock of $10.07 on May 9, 2017, the last full trading day prior to the publication of an article in The Wall Street Journal reporting that Calpine was exploring a sale and working with Lazard as it sought buyers;

 

    represented a premium of approximately 50% over the volume weighted average price per share of Calpine common stock of $10.16 for the 20 days prior to May 9, 2017;

 

    represented a premium of approximately 42% over the volume weighted average price per share of Calpine common stock of $10.73 for the 60 days prior to May 9, 2017;

 

    represented a premium of approximately 37% over the volume weighted average price per share of Calpine common stock of $11.14 for the 120 days prior to May 9, 2017; and

 

    represented a premium of approximately 13% over the closing price per share of Calpine common stock of $13.50 on August 17, 2017, the last full trading day prior to the public announcement of the merger agreement.

 

    The form of consideration to be paid in the transaction is cash, which provides certainty of value and immediate liquidity to Calpine’s stockholders while avoiding potential long-term business risk.

 

    The $15.25 per share merger consideration represented a premium of approximately 3% over Energy Capital Partners’ initial proposal of $14.80 per share, and the conclusion reached by the Calpine Board, after discussions with Calpine’s management and advisors and negotiations with Energy Capital Partners, that the per share merger consideration of $15.25 was likely the highest price per share that Energy Capital Partners was willing to pay and that the combination of public disclosure of the merger consideration and the go-shop process (as further described in the section entitled “The Merger Agreement—Terms of the Merger Agreement—Go-Shop Period; Solicitation of Alternative Transaction Proposals” beginning on page 108 of this proxy statement) would likely result in a sale of Calpine at the highest price per share that was reasonably attainable.

 

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    The Calpine Board’s belief that, at this time, the merger consideration of $15.25 per share is more favorable to Calpine’s stockholders than the potential value that might result from the strategic alternatives reasonably available to Calpine (including the alternative of remaining a stand-alone publicly-held entity and other strategic alternatives that might be pursued by Calpine, such as strategic business combinations, acquisitions of other businesses by Calpine and dispositions of certain business segments of Calpine).

 

    The current and historical market prices of shares of Calpine common stock, including those set forth in the table in the section entitled “Market Price of Calpine Common Stock” beginning on page 135 of this proxy statement, taking into account the market performance of Calpine common stock relative to the common stock of other participants in the industry in which Calpine operates and general market indices.

Prospects of Calpine

 

    The current public market for shares of Calpine common stock, including that uncertainty about regulatory and energy market dynamics affecting the independent power producer industry had caused traditional investors in the sector to lose confidence in the potential for growth, which resulted in lower valuation multiples for independent power producers, including Calpine, and that the limited number of publicly traded companies in the industry and the decline in the total investible market capitalization of companies in the sector were impediments to traditional long-term investors continuing to invest in the industry, all of which negatively affected the price of shares of Calpine common stock, as did energy market prices generally.

 

    Calpine’s current and historical business, financial condition, results of operations, competitive position, strategic options, capital requirements and prospects, the nature of the industry and regulatory environment in which Calpine competes, including that the commodities sector generally and U.S. energy (power) market, in particular the independent power producer industry, continue to face a challenging environment, and Calpine’s financial plan and prospects if Calpine were to remain a stand-alone publicly-held entity, and the potential impact of those factors on the trading price of shares of Calpine common stock (which cannot be quantified numerically).

 

    The prospective risks associated with Calpine continuing as a stand-alone publicly-held entity, including the risks and uncertainties with respect to (a) achieving its growth, operating cash flow and profitability targets in light of the current and foreseeable market conditions, including the risks and uncertainties in the United States and the global economy generally and the power industry specifically, (b) general market conditions and volatility, including the performance of broad-based stock market indices and exchanges and (c) risks and uncertainties described in the “risk factors” set forth in Calpine’s Form 10-K for the fiscal year ended December 31, 2016.

 

    The inherent uncertainty of attaining management’s internal financial projections, including those set forth in the section entitled “—Certain Company Projections” beginning on page 65 of this proxy statement, and the fact that Calpine’s actual financial results in future periods could differ materially and adversely from the projected results.

Strategic Alternatives

 

    Calpine initiated a process to explore formally its strategic alternatives beginning in March 2017, and, since such time, representatives of Calpine and its financial advisors solicited bids from a group of seven potential acquirors, including Energy Capital Partners, of which four entered into confidentiality agreements with Calpine and received an evaluation package containing financial information regarding Calpine’s business, management presentations and access to a virtual data room, with two such potential acquirors submitting indications of interest.

 

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    No potential acquirors, other than Energy Capital Partners and Party A, submitted proposals to Calpine regarding a potential sale transaction, notwithstanding multiple news articles that were published regarding a potential sale of Calpine, related contacts from potential acquirors and Calpine’s disclosure on July 28, 2017 of the Calpine Board’s exploration of strategic alternatives.

 

    Potential acquirors would still have the opportunity to make a proposal during and after the go-shop period and, pursuant to the terms of the merger agreement, Calpine may, during the go-shop period, solicit, initiate, facilitate or encourage, or participate in discussions or negotiations regarding, an alternative transaction proposal from certain persons, including those parties that previously executed confidentiality agreements with Calpine, and, after the no-shop period start date, Calpine may consider unsolicited alternative transaction proposals and terminate the merger agreement and enter into an agreement with a third party that makes a superior proposal (as defined and further described in the section entitled “The Merger Agreement—Terms of the Merger Agreement—Go-Shop Period; Solicitation of Alternative Transaction Proposals” beginning on page 108 of this proxy statement).

 

    The price proposed by Energy Capital Partners reflected extensive negotiations between the parties and their respective advisors, and represented the highest proposal that Calpine received for shares of Calpine common stock.

 

    The financial and other terms and conditions of the merger agreement and the transactions contemplated thereby, including the merger, resulted from extensive negotiations conducted at the direction of the Calpine Board, with the assistance of experienced legal and financial advisors, during a process that resulted in, among other things, an increase in the merger consideration from Energy Capital Partners’ initial proposal of $14.80 per share on May 5, 2017 to its final proposal of $15.25 per share.

 

    The Calpine Board’s belief that any further requirement that Energy Capital Partners increase its proposed price per share of Calpine common stock could delay and destabilize Energy Capital Partners’ equity syndication efforts, as confirmed by the lack of proposals following market rumors, as well as during the go-shop period.

 

    The strategic review and discussion undertaken by the Calpine Board with the assistance of Calpine’s management and advisors, which involved the evaluation of potential strategic alternatives with a goal of maximizing stockholder value, including executing on Calpine’s standalone business plan, portfolio diversification, securities repurchases, dividends, alternative financings, project developments, acquisitions, divestitures of assets or certain business segments or portions thereof and business combinations, and the consideration by the Calpine Board of multiple potential acquirors (the foregoing, as further described in the section entitled “—Background of the Merger” beginning on page 39 of this proxy statement), which all supported the Calpine Board’s belief that the merger agreement and the transactions contemplated thereby, including the merger, were more favorable to Calpine and its stockholders, when compared with other strategic initiatives reasonably available to Calpine.

 

    The Calpine Board’s evaluation of (a) potential business combinations with independent power producers and competitive power affiliates of utilities and (b) Calpine senior management’s recent interactions with, and assessments of, other independent power producers and competitive power affiliates of utilities, including that (i) such interactions and assessments did not lead to any near-term opportunities, (ii) seeking an opportunity with certain potential strategic counterparties either was not strategically desirable or likely would not be value accretive for Calpine’s stockholders or such counterparty, and (iii) an acquisition of Calpine by an integrated utility group was unlikely given that, among other factors, Calpine’s current debt profile could adversely impact such group’s credit ratings.

Opinion of Calpine’s Financial Advisor

 

   

The financial presentation and opinion of Lazard, dated August 17, 2017, to the Calpine Board, as to the fairness, from a financial point of view and as of the date of the opinion, to holders of shares of

 

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Calpine common stock (other than holders of certain excluded shares) of the merger consideration to be paid to such holders, as more fully described in the section entitled “—Opinion of Calpine’s Financial Advisor” beginning on page 57 of this proxy statement.

Merger Agreement Terms

 

    The merger agreement contains deal protection provisions which, in the view of the Calpine Board, likely would not deter any interested third party from making, or inhibit the Calpine Board from approving, superior proposals.

 

    The merger agreement provides that, during the go-shop period, Calpine and its advisors may (a) solicit, initiate, facilitate or encourage alternative transaction proposals from third parties, other than identified sponsor investors (as defined in the section entitled “The Merger Agreement—Terms of the Merger Agreement—Go-Shop Period; Solicitation of Alternative Transaction Proposals” beginning on page 108 of this proxy statement), including by way of furnishing information regarding Calpine and its subsidiaries to such third parties (subject to entry into acceptable confidentiality agreements) and (b) participate in any discussions or negotiations with respect to alternative transaction proposals or otherwise cooperate in connection with or assist or participate in or facilitate any such discussions or negotiations or any effort or attempt to make any such alternative transaction proposals.

 

    From the no-shop period start date until the earlier of the cut off time and the time that such exempted person ceases to be an exempted person pursuant to the merger agreement, Calpine would not be prohibited from soliciting, facilitating, encouraging, discussing, negotiating or cooperating with respect to any alternative transaction proposals from, or providing information to or participating in any discussions or negotiations regarding alternative transaction proposals with, an exempted person.

 

    At any time before the merger agreement is adopted by Calpine’s stockholders, under certain circumstances, Calpine may furnish information with respect to Calpine and its subsidiaries to, and participate in discussions or negotiations with, a person making an alternative transaction proposal.

 

    Prior to the special meeting of Calpine’s stockholders, under certain circumstances in response to a bona fide superior proposal, the Calpine Board may, among other things, withdraw (or qualify, amend or modify in a manner materially adverse to Parent), or publicly propose to withdraw (or qualify, amend or modify in a manner materially adverse to Parent) its recommendation that Calpine’s stockholders adopt the merger agreement.

 

    The Calpine Board’s belief that the size of the company termination fee of $142 million (or $65 million if Calpine effects a superior proposal termination with any exempted person prior to the cut off time), likely would not deter any interested third party from making, or inhibit the Calpine Board from approving, a superior proposal and that the size of the termination fee is typical of such fees in similar transactions.

 

    The merger agreement was the product of extensive arms-length negotiations, and Calpine’s senior management, which did not negotiate or enter into any employment arrangements with Energy Capital Partners in connection with the merger, members of the Calpine Board and Calpine’s legal and financial advisors were involved throughout the negotiations.

 

    The availability of statutory appraisal rights under the DGCL in connection with the merger.

 

    Calpine’s ability, under certain circumstances pursuant to the merger agreement, to seek specific performance to prevent breaches of the merger agreement by Parent and Merger Sub and to specifically enforce the terms of the merger agreement.

 

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    The ability of Calpine to seek damages in the event of a willful or intentional breach by Energy Capital Partners of its obligations under the merger agreement.

Likelihood of Consummation

 

    The Calpine Board considered a number of factors contributing to the probability that the merger would be consummated, including:

 

    (a) the limited conditions to the parties’ obligations to complete the merger, including the absence of a financing condition, (b) the commitment by Energy Capital Partners to use its reasonable best efforts to obtain applicable regulatory approvals and its obligations with respect to credit ratings, and (c) Energy Capital Partners’ representations and warranties related to financing of the transaction, together with the committed equity financing by Energy Capital Partners and its affiliated funds and the consortium co-investors pursuant to the equity commitment letter and subscription agreements, respectively, and the agreement of Barclays to provide committed financing of up to $950 million under the bridge facility to bridge a portion of Energy Capital Partners’ equity commitment;

 

    Parent has delivered an equity commitment letter and the limited partners of Parent have delivered subscription agreements that provide Calpine with rights as a third party beneficiary pursuant to which Parent and Merger Sub will obtain sufficient funds to comply with their respective obligations under the merger agreement, including payment of the merger consideration;

 

    Calpine’s ability, under circumstances specified in the merger agreement, to seek specific performance of Parent’s obligation to cause the merger to occur;

 

    the requirement that, in the event of a failure of the merger to be consummated under certain circumstances, Parent pay Calpine a parent termination fee of $335 million (or $100 million under specified circumstances), and the commitment with respect to such payment obligation by the guarantor (as further described in the section entitled “The Merger Agreement—Terms of the Merger Agreement—Termination Fee” beginning on page 125 of this proxy statement);

 

    the fact that the conditions to the consummation of the merger are not generally within the control or discretion of Energy Capital Partners or Merger Sub; and

 

    the business reputation and capabilities of Energy Capital Partners and its management and the financial resources of Energy Capital Partners.

 

    The Calpine Board also considered a number of uncertainties, risks and potentially negative factors in its deliberations concerning the merger and the other transactions contemplated by the merger agreement, including the following:

 

    following the consummation of the merger, Calpine will no longer exist as an independent public company and that the consummation of the Merger and receipt of the merger consideration, while providing relative certainty of value, will not allow Calpine’s stockholders to participate in potential future growth in Calpine’s assets, future earnings growth, future appreciation in value of Calpine common stock or any future dividends after the merger;

 

    Calpine’s directors, officers and employees have expended and will expend extensive efforts attempting to complete the transactions contemplated by the merger agreement and such persons have experienced and will experience significant distractions from their work during the pendency of such transactions and that Calpine has incurred and will incur substantial costs in connection with such transactions, even if such transactions are not consummated;

 

   

the risk that the transactions contemplated by the merger agreement, including the merger, and the financing for the transaction, may not be consummated in a timely manner or at all, and the consequences thereof, including (a) the potential loss of value to Calpine’s stockholders, (b) the

 

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potential negative impact on the operations and prospects of Calpine, including the risk of loss of key personnel, and (c) the market’s perception of Calpine’s prospects could be adversely affected if such transactions were delayed or were not consummated;

 

    the failure of Parent to obtain the equity or debt financing contemplated by the financing commitments, or alternative financing, if necessary, or the failure of any such financing to be sufficient to consummate the merger and the other transactions contemplated by the merger agreement;

 

    the risk that Calpine may be unable to obtain the requisite stockholder approval for the transactions contemplated by the merger agreement;

 

    the possible effects of the pendency or consummation of the transactions contemplated by the merger agreement, including the potential for suits, actions or proceedings in respect of the merger agreement or the transactions contemplated by the merger agreement, the risk of any loss or change in the relationship of Calpine and its subsidiaries with their respective employees, agents, and customers and other business relationships, and any possible effect on Calpine’s ability to attract and retain key employees, including that certain key members of senior management might choose not to remain employed with Calpine prior to the consummation of the merger;

 

    consummation of the merger will require antitrust clearance, approval from the FERC and the satisfaction of certain other closing conditions that are not generally within Calpine’s control; and Energy Capital Partners is obligated to assume most but not all risks related to conditions and requirements that may be imposed by regulators in connection with securing such approvals;

 

    the terms of the merger agreement, including:

 

    the operational restrictions imposed on Calpine between signing and closing (which may delay or prevent Calpine from undertaking business opportunities that may arise pending the consummation of the merger or any other actions Calpine otherwise would have taken with respect to the operations of Calpine absent the pending consummation of the merger);

 

    the restrictions imposed by the merger agreement on Calpine’s solicitation of acquisition proposals from third parties after the go-shop period, and that prospective bidders may perceive Parent’s right under the merger agreement to negotiate with Calpine to match the terms of any superior proposal prior to Calpine being able to terminate the merger agreement and accept a superior proposal to be a deterrent to making alternative proposals;

 

    the possibility that Calpine may be required to pay Parent (or its designee) a company termination fee of $142 million or $65 million (as further described in the section entitled “The Merger Agreement—Terms of the Merger Agreement—Termination Fee” beginning on page 125 of this proxy statement), under certain circumstances, including to accept a superior proposal;

 

    Calpine’s remedy in the event of the failure of the merger to close as a result of a financing failure is limited to $335 million; and

 

    that Parent and Merger Sub are newly formed entities with essentially no assets and that the limited guarantee, provided by ECP III-A, is subject to a cap of $335 million;

 

    the understanding that some of Calpine’s directors and executive officers have other interests in the merger in addition to their interests as stockholders, including certain severance arrangements, as described in the section entitled “—Interests of Certain Persons in the Merger” beginning on page 79 of this proxy statement and the section entitled “Advisory Vote on Golden Parachute Compensation (Proposal 3)” beginning on page 129 of this proxy statement; and

 

    the fact that the cash consideration paid in the transaction would be taxable to Calpine’s stockholders that are United States Holders for U.S. federal income tax purposes.

 

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The Calpine Board believed that, overall, the potential benefits of the merger to Calpine’s stockholders outweighed the risks and uncertainties of the merger.

The foregoing discussion of information and factors considered by the Calpine Board is not intended to be exhaustive. In light of the variety of factors considered in connection with its evaluation of the merger, the Calpine Board did not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching their determinations and recommendations. Moreover, each member of the Calpine Board applied his or her own personal business judgment to the process and may have given different weight to different factors.

The foregoing discussion of the information and factors considered by the Calpine Board is forward-looking in nature. This information should be read in light of the factors described in the section entitled “Cautionary Statement Concerning Forward-Looking Information” beginning on page 28 of this proxy statement.

The Calpine Board unanimously recommends that you vote “FOR” the proposal to adopt the merger agreement, thereby approving the merger.

In considering the recommendation of the Calpine Board with respect to the proposal to adopt the merger agreement, you should be aware that certain of our directors and executive officers may be deemed to have interests in the transactions contemplated by the merger agreement that are different from, or in addition to, those of Calpine’s stockholders generally. See the section entitled “—Interests of Certain Persons in the Merger” beginning on page 79 of this proxy statement and the section entitled “Advisory Vote on Golden Parachute Compensation (Proposal 3)” beginning on page 129 of this proxy statement. The Calpine Board was aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement and the merger, and in recommending that the merger agreement be adopted by Calpine’s stockholders.

Opinion of Calpine’s Financial Advisor

Calpine retained Lazard to provide it with financial advisory services and a fairness opinion in connection with the merger. On August 17, 2017, Lazard rendered its written opinion, consistent with its oral opinion rendered on the same date, to the Calpine Board that, as of such date, and based upon and subject to the assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of review undertaken by Lazard as set forth therein, the merger consideration to be paid to holders of shares of Calpine common stock (other than holders of excluded shares) in connection with the merger was fair, from a financial point of view, to such holders.

The full text of Lazard’s written opinion to the Calpine Board, dated August 17, 2017, which sets forth the assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of review undertaken by Lazard in connection with its opinion, is attached to this proxy statement as Annex B and is incorporated by reference herein in its entirety. The following summary of Lazard’s opinion is qualified in its entirety by reference to the full text of the opinion. You are encouraged to read Lazard’s opinion and this section carefully and in their entirety.

Lazard’s engagement and its opinion were for the benefit of the Calpine Board (in its capacity as such), and Lazard’s opinion was rendered to the Calpine Board on August 17, 2017 in connection with its evaluation of the merger and addressed only the fairness as of the date of the opinion, from a financial point of view, to holders of shares of Calpine common stock (other than holders of excluded shares) of the consideration to be paid to such holders in the merger. Lazard’s opinion was not intended to, and does not, constitute a recommendation to any stockholder as to how such stockholder should vote or act with respect to the merger or any matter relating thereto. Lazard’s opinion was necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to Lazard as of, the date of the opinion. Lazard assumed no responsibility for updating or revising its opinion based on circumstances or events occurring after the date of the opinion.

 

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Lazard did not express any opinion as to the price at which shares of Calpine common stock may trade at any time subsequent to the announcement of the merger. In addition, Lazard’s opinion did not address the relative merits of the merger as compared to any other transaction or business strategy in which Calpine might engage or the merits of the underlying decision by Calpine to engage in the merger.

In connection with its opinion, Lazard:

 

    reviewed the financial terms and conditions of a draft, dated August 17, 2017, of the merger agreement;

 

    reviewed certain publicly available historical business and financial information relating to Calpine;

 

    reviewed various financial forecasts and other data provided to Lazard by Calpine relating to the business of Calpine;

 

    held discussions with members of the senior management of Calpine with respect to the business and prospects of Calpine;

 

    reviewed public information with respect to certain other companies in lines of business Lazard believed to be generally relevant in evaluating the business of Calpine;

 

    reviewed the financial terms of certain business combinations involving companies in lines of business comparable in certain respects to the business of Calpine;

 

    reviewed historical stock prices and trading volumes of Calpine common stock; and

 

    conducted such other financial studies, analyses and investigations as Lazard deemed appropriate.

Lazard assumed and relied upon the accuracy and completeness of the foregoing information, without independent verification of such information. Lazard did not conduct any independent valuation or appraisal of any of the assets or liabilities (contingent or otherwise) of Calpine or Parent or concerning the solvency or fair value of Calpine or Parent, and Lazard was not furnished with any such valuation or appraisal. Management of Calpine advised Lazard that the June 2017 Projections (as defined in the section entitled “—Certain Company Projections” beginning on page 65 of this proxy statement) represented the best then-currently available estimates and judgments as to the future financial performance of Calpine, and, accordingly, for purposes of Lazard’s analyses in connection with its opinion, Calpine directed Lazard to utilize such financial forecasts. With respect to the financial forecasts utilized in Lazard’s analyses, Lazard assumed, with the consent of Calpine, that they were reasonably prepared. Lazard assumed no responsibility for and expressed no view as to any such forecasts or the assumptions on which they were based.

Representatives of Calpine advised Lazard, and Lazard assumed, that the merger agreement, when executed, would conform to the draft reviewed by Lazard in all material respects. In rendering its opinion, Lazard assumed, with the consent of Calpine, that the merger would be consummated on the terms described in the merger agreement, without any waiver or modification of any material terms or conditions. Lazard also assumed, with the consent of Calpine, that obtaining the necessary governmental, regulatory or third-party approvals and consents for the merger would not have an adverse effect on Calpine, Parent or the merger. Lazard did not express any opinion as to any tax or other consequences that might result from the merger, nor did Lazard’s opinion address any legal, tax, regulatory or accounting matters, as to which Lazard understood that Calpine had obtained such advice as it deemed necessary from qualified professionals. Lazard expressed no view or opinion as to any terms or other aspects (other than the merger consideration to the extent expressly specified in the opinion) of the merger. In addition, Lazard expressed no view or opinion as to the fairness of the amount or nature of, or any other aspects relating to, the compensation to any officers, directors or employees of any parties to the merger, or class of such persons, relative to the merger consideration or otherwise.

In connection with rendering its opinion, Lazard performed certain financial analyses and reviews of certain information that Lazard deemed appropriate in connection with rendering its opinion as summarized in the section entitled “—Summary of Lazard Financial Analyses” beginning on page 59 of this proxy statement. In

 

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addition, Lazard also performed certain additional financial analyses and reviews as summarized in the section entitled “—Other Analyses” beginning on page 62 of this proxy statement. The summary of the analyses and reviews provided in the sections entitled “—Summary of Lazard Financial Analyses” and —Other Analyses” is not a complete description of the analyses and reviews undertaken by Lazard. The preparation of a fairness opinion is a complex process involving various determinations as to the most appropriate and relevant methods of financial analysis and review and the application of those methods to particular circumstances and, therefore, is not readily susceptible to partial analysis or summary description. Considering selected portions of these analyses and reviews or the summary contained in the sections entitled “—Summary of Lazard Financial Analyses” and “—Other Analyses,” without considering the analyses and reviews as a whole, could create an incomplete or misleading view of the analyses and reviews undertaken by Lazard. In arriving at its opinion, Lazard considered the results of all of its analyses and reviews set forth in the section entitled “—Summary of Lazard Financial Analyses” and did not attribute any particular weight to any particular analysis or review or application thereof considered by it; rather, Lazard made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of its analyses and reviews.

For purposes of its analyses and reviews, Lazard considered industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of Calpine. No company, business or transaction used in Lazard’s analyses and reviews, as a comparison, is identical to Calpine, its business or the merger, and an evaluation of the results of those analyses and reviews is not entirely mathematical. Rather, the analyses and reviews involve complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the acquisition, public trading or other values of the companies, businesses or transactions used in Lazard’s analyses and reviews. The estimates contained in Lazard’s analyses and reviews and the ranges of valuations resulting from any particular analysis or review are not necessarily indicative of actual results or values or predictive of future results or values, which may be significantly more or less favorable than those suggested by Lazard’s analyses and reviews. In addition, analyses and reviews relating to the value of companies, businesses or securities do not purport to be appraisals or to reflect the prices at which companies, businesses or securities actually may be sold. Accordingly, the estimates used in, and the results derived from, Lazard’s analyses and reviews are inherently subject to substantial uncertainty.

Summary of Lazard Financial Analyses

The summary of the analyses and reviews provided below includes information presented in tabular format. In order to fully understand Lazard’s analyses and reviews, the tables must be read together with the full text of each summary. The tables alone do not constitute a complete description of Lazard’s analyses and reviews. Considering the data in the tables below without considering the full description of the analyses and reviews, including the methodologies and assumptions underlying the analyses and reviews, could create a misleading or incomplete view of Lazard’s analyses and reviews.

Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before August 17, 2017, and is not necessarily indicative of current market conditions. For purposes of the financial analyses described below, unless otherwise noted, (a) Lazard assumed, with the consent of Calpine, net debt of $11,495 million and non-controlling interest of $73 million, each as of June 30, 2017, and 362.5 million fully-diluted shares outstanding as provided by Calpine, which includes basic Calpine common stock, company restricted stock units, company restricted shares and outstanding company options (the impact of which is calculated using the Treasury Stock Method), (b) present value date means June 30, 2017 and (c) Lazard utilized the June 2017 Projections as provided by management of Calpine. Implied price per share ranges for shares of Calpine common stock were rounded to the nearest $0.25.

Selected Public Company Analysis

For purposes of its analysis, Lazard reviewed and analyzed certain financial information, valuation multiples and market trading data related to Calpine and selected comparable publicly traded companies whose

 

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operations Lazard believed, based on its experience with companies in the independent power producer industry and professional judgment, to be generally relevant in analyzing Calpine’s operations. Lazard then compared such information to the corresponding information in the June 2017 Projections.

The selected group of companies used in this analysis, which we refer to as “Calpine comparable companies,” was as follows:

 

    Dynegy Inc.;

 

    NRG Energy, Inc.; and

 

    Vistra Energy Corp.

Lazard selected the companies reviewed in this analysis because, among other things, the Calpine comparable companies operate businesses similar to the business of Calpine. However, none of the selected companies is identical to Calpine. Accordingly, Lazard believes that purely quantitative analyses are not, in isolation, determinative in the context of the merger and that qualitative judgments concerning differences between the business, financial and operating characteristics and prospects of Calpine and the Calpine comparable companies that could affect the public trading values of each also are relevant.

Lazard calculated and compared the ratio of Calpine’s and each company’s NOL-adjusted enterprise value, which Lazard calculated as the market capitalization of each company (based on each company’s fully-diluted share count as of March 31, 2017 and closing share price as of May 9, 2017, which we refer to as the “unaffected date,” and which represented the last “unaffected” trading day for shares of Calpine common stock prior to an article published in The Wall Street Journal on May 10, 2017 speculating that Calpine was exploring a sale transaction), plus balance sheet debt and other non-equity capitalization (if applicable) and less cash, cash equivalents and marketable securities (each, as of March 31, 2017) and less the estimated net present value of each company’s net operating losses (as estimated by Wall Street research, which represents publicly available consensus estimates), which we refer to as “NOL” or “NOLs,” to its calendar year 2017 and 2018 estimated earnings before interest, taxes, depreciation and amortization, commonly referred to as “EBITDA.” The EBITDA estimates for Calpine and each of the Calpine comparable companies used by Lazard in its analysis were based on estimates provided by Wolfe Research. The multiples of Vistra Energy Corp. were excluded from the analysis because Lazard believed, in its professional judgment, that such multiples were impacted by Vistra Energy Corp.’s limited trading history.

The following table summarizes the results of this review:

 

     NOL-adjusted Enterprise Value
to 2017E EBITDA
     NOL-adjusted Enterprise
Value to 2018E EBITDA
 

High

     8.6x        8.3x  

Mean

     7.5x        7.0x  

Low

     6.4x        5.5x  

Based on an analysis of the relevant metrics for Calpine and each of the Calpine comparable companies, as well as its professional judgment and experience, Lazard applied a NOL-adjusted enterprise value to EBITDA multiple range of 7.00x to 8.00x and 6.50x and 7.50x to the calendar years 2017 and 2018 estimated adjusted EBITDA of Calpine as reflected in the June 2017 Projections, respectively, and added the net present value of Calpine’s NOLs based on Calpine’s estimated utilization of federal and state NOLs multiplied by the applicable tax rates and discount rates ranging from 6.00% to 12.25%.

This analysis resulted in an implied price per share range for shares of Calpine common stock, as compared to the merger consideration, as set forth below.

 

Implied Price Per Share Range

  

Merger Consideration

$7.25 – $12.50

   $15.25

 

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Discounted Cash Flow Analysis

Lazard performed discounted cash flow analyses of Calpine on both a levered and unlevered basis. A discounted cash flow analysis is a valuation methodology used to derive a valuation of a company by calculating the present value of its estimated future cash flows. “Future cash flows” refers to either projected unlevered or levered free cash flows of a company, as applicable. “Present value” refers to the current value of future cash flows or amounts and is obtained by discounting those future cash flows or amounts by an applicable discount rate. Lazard calculated the discounted cash flow value for Calpine as the sum of the net present value as of the present value date of each of:

 

    the estimated future cash flows excluding the estimated utilization of Calpine’s NOLs, on a levered and unlevered basis, that Calpine was expected to generate during the second half of calendar year 2017;

 

    the estimated future cash flows excluding the estimated utilization of Calpine’s NOLs, on a levered and unlevered basis, that Calpine was expected to generate during each of calendar years 2018 through 2021;

 

    the estimated value of Calpine at the end of calendar 2021, which excludes the estimated utilization of Calpine’s NOLs and includes an adjustment reflecting an incremental maintenance expense of $20 million per year after 2021E, which we refer to as the “terminal value”; and

 

    Calpine’s NOLs based on estimated utilization of federal and state NOLs multiplied by the applicable tax rates.

The following table sets forth the estimated adjusted EBITDA and levered and unlevered future cash flows, in each case excluding the estimated utilization of Calpine’s NOLs, for each of the second half of calendar year 2017 and the calendar years 2018 through 2021:

 

     Fiscal Year Ending December 31, ($ in millions)  
     2H 2017E      2018E     2019E      2020E      2021E  

Adjusted EBITDA

   $ 1,108       $ 1,999     $ 1,914      $ 1,814      $ 1,804  

Unlevered Free Cash Flow(1)

   $ 728       $ 1,126     $ 1,355      $ 1,283      $ 1,101  

Levered Free Cash Flow(2)

   $ 36      ($ 98   $ 165      $ 708      $ 624  

 

(1) Unlevered Free Cash Flow includes, among other line items, growth capital expenditures, non-recurring items and operating lease payments.
(2) Levered Free Cash Flow includes, among other line items, growth capital expenditures, non-recurring items, cash interest expenses (net), debt paydown and associated fees and operating lease payments. Per the June 2017 Projections, the estimated debt paydown and associated fees are $890 million, $907 million, $871 million, $301 million and $210 million for the fiscal year ending December 31, 2017, 2018, 2019, 2020 and 2021, respectively.

For its discounted cash flow calculations, Lazard applied discount rates ranging from 5.75% to 6.25% for unlevered cash flows, 11.75% to 12.75% for levered cash flows and 6.00% to 12.25% for Calpine’s NOL utilization. The discount range for the unlevered cash flows was based on the mid-range of Lazard’s judgment of the weighted average cost of capital for Calpine. The discount range for the levered cash flows was based on the mid-range of Lazard’s judgment of the cost of equity for Calpine utilizing the capital asset pricing model. The discount range for Calpine’s NOL utilization was based on Lazard’s judgment as to the risk profile associated with Calpine’s NOL utilization with reference to the weighted average cost of capital for Calpine and the cost of equity for Calpine.

The terminal value of Calpine was calculated applying terminal year NOL-adjusted enterprise value to EBITDA multiples ranging from 6.75x to 7.75x.

Such multiples were selected by Lazard by reference to NOL-adjusted enterprise value to EBITDA trading multiples calculated for Calpine as well as the corresponding multiples of the Calpine comparable companies

 

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(excluding Vistra Energy Corp.). Lazard applied such ranges of multiples to the relevant financial data of Calpine to determine a terminal value for Calpine.

Lazard averaged the price per share ranges implied by these calculations for levered and unlevered cash flows and, based on these analyses, reviewed the implied price per share range for shares of Calpine common stock, as compared to the merger consideration, as set forth below.

 

Implied Price Per Share Range

  

Merger Consideration

$10.25 – $15.75

   $15.25

Other Analyses

The analyses and data described below were presented to the Calpine Board for informational purposes only and did not provide the basis for, and were not otherwise material to, the rendering of Lazard’s opinion.

52-Week High/Low Trading Prices

Lazard reviewed the range of trading prices of shares of Calpine common stock for the 52 weeks ended on May 9, 2017, the unaffected date. Lazard observed that, during such period, the intraday share price of Calpine common stock ranged from $9.25 to $16.00 per share, as compared to the merger consideration of $15.25 per share.

Illustrative Discounted Future Stock Price Analysis

Lazard performed an illustrative analysis of the implied present value of a hypothetical future price of shares of Calpine common stock on December 31, 2020, which is designed to provide an indication of the present value of a theoretical future value of a company’s equity based on the company’s estimated adjusted EBITDA and an assumed NOL-adjusted enterprise value to EBITDA multiple plus the estimated net present value of a company’s NOLs based on estimated utilization of federal and state NOLs multiplied by the applicable tax rates, discounted to the present value date at an estimated cost of equity. For purposes of this analysis, Lazard first calculated Calpine’s implied enterprise value for the calendar year ending December 31, 2020 by applying NOL-adjusted enterprise value to EBITDA multiples ranging from 7.25x to 8.25x to estimates of Calpine’s adjusted EBITDA for the calendar year ending December 31, 2021 and adding the net present value of Calpine’s NOLs (as of December 31, 2020) based on Calpine’s estimated utilization of federal and state NOLs multiplied by the applicable tax rates and discount rates ranging from 6.00% to 12.25%. Lazard then subtracted net debt and non-controlling interest as of December 21, 2020. Finally, Lazard calculated the present values, as of the present value date, of the implied per share future stock prices for Calpine common stock in the calendar year ending 2020, using discount rates ranging from 12.00% to 12.50%, based on estimates relating to Calpine’s cost of equity. Based on the foregoing, Lazard calculated an illustrative implied price per share range for shares of Calpine common stock of $10.50 to $14.00 per share, as compared to the merger consideration of $15.25 per share.

Discounted Cash Flow Analysis—Updated February 2017 Marketing Projections

Lazard performed a discounted cash flow analysis of Calpine using the same methodology as set forth in the section entitled “—Summary of Lazard Financial Analyses—Discounted Cash Flow Analysis” beginning on page 61 of this proxy statement, except that Lazard, at the direction of management of Calpine, derived estimated future levered and unlevered cash flows utilizing the Updated February 2017 Marketing Projections (as defined in the section entitled “—Certain Company Projections” beginning on page 65 of this proxy statement) as provided by management of Calpine. The following table sets forth the estimated adjusted EBITDA and levered and unlevered future cash flows, in each case excluding the estimated utilization of Calpine’s NOLs,

 

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based on the Updated February 2017 Marketing Projections for each of the second half of calendar year 2017 and the calendar years 2018 through 2021:

 

     Fiscal Year Ending December 31, ($ in millions)  
     2H 2017E      2018E     2019E      2020E      2021E  

Adjusted EBITDA

   $ 1,105       $ 2,047     $ 2,090      $ 1,993      $ 2,031  

Unlevered Free Cash Flow(1)

   $ 741       $ 1,193     $ 1,480      $ 1,390      $ 1,232  

Levered Free Cash Flow(2)

   $ 49      ($ 5   $ 385      $ 68      $ 30  

 

(1) Unlevered Free Cash Flow includes, among other line items, growth capital expenditures, non-recurring items and operating lease payments.
(2) Levered Free Cash Flow includes, among other line items, growth capital expenditures, non-recurring items, cash interest expenses (net), debt paydown and associated fees and operating lease payments. Per the Updated February 2017 Marketing Projections, the estimated debt paydown and associated fees are $886 million, $902 million, $861 million, $1,134 million and $1,061 million for the fiscal year ending December 31, 2017, 2018, 2019, 2020 and 2021, respectively.

Lazard averaged the price per share ranges implied by these calculations for levered and unlevered cash flows and, based on these analyses, reviewed the implied price per share range for shares of Calpine common stock of $14.75 to $20.75 per share, as compared to the merger consideration of $15.25 per share.

Selected Precedent Transactions Multiple Analysis

Lazard reviewed and analyzed selected precedent merger and acquisition transactions involving companies in the independent power producer industry that it viewed, based on its experience and professional judgment, as generally relevant in analyzing Calpine. In performing this analysis, Lazard reviewed certain financial information and transaction multiples relating to the companies involved in such selected transactions and compared such information to the corresponding information for Calpine. Specifically, Lazard reviewed 15 merger and acquisition transactions announced since February 2007 involving companies in the independent power producer industry for which sufficient public information was available.

The selected group of transactions reviewed in this analysis was as follows:

 

Announcement Date

  

Acquiror

  

Target

09/14/2016   

The Blackstone Group L.P. and

ArcLight Capital Partners, LLC

   American Electric Power Company, Inc. (Midwest Generation Assets)
06/03/2016    Riverstone Holdings LLC    Talen Energy Corporation
02/25/2016    Dynegy Inc. and Energy Capital Partners    Engie SA (U.S. Fossil Portfolio)
12/23/2015    ArcLight Capital Partners, LLC   

Tenaska Capital Management, LLC

(Natural Gas and Duel-fired Assets)

08/22/2014    Dynegy Inc.   

Duke Energy Corporation

(Midwest Generation Assets)

08/22/2014    Dynegy Inc.    EquiPower Resources Corp.
10/18/2013    NRG Energy, Inc.    Edison Mission Energy
03/14/2013    Dynegy Inc.    Ameren Energy Resources—Merchant Generation Business
07/20/2012    NRG Energy, Inc.    GenOn Energy, Inc.
04/28/2011    Exelon Corporation    Constellation Energy Group, Inc.
08/13/2010    The Blackstone Group L.P.    Dynegy Inc.
04/21/2010    Calpine   

Pepco Holdings, Inc.

(Conectiv Energy Power Generation Assets)

02/11/2010    FirstEnergy Corp.    Allegheny Energy, Inc.
10/19/2008    Exelon Corporation    NRG Energy, Inc.
02/26/2007    Investor Group    TXU Corp.

 

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To the extent publicly available, Lazard reviewed, among other things, the enterprise value to EBITDA multiples of each of the target companies implied by the selected transactions by comparing the enterprise value implied by the acquisition price to the relevant target company’s estimated EBITDA for the fiscal year immediately following the fiscal year in which the relevant transaction was announced. Estimated EBITDA amounts for the target companies were based on publicly available Wall Street consensus estimates or other publicly available financial information and analysts’ research. The following table summarizes the results of this review:

 

     Selected Precedent Transactions Enterprise Value to
EBITDA Multiples
 

High

     10.2x  

Median

     7.2x  

Mean

     7.3x  

Low

     4.1x  

Based on an analysis of the relevant metrics for each of the transactions, as well as its professional judgment and experience, Lazard applied an enterprise value to EBITDA multiple range of 7.00x to 8.00x to the calendar year 2018 estimated adjusted EBITDA of Calpine. This analysis resulted in an implied price per share range for shares of Calpine common stock of $6.75 to $12.25, as compared to the merger consideration of $15.25.

Miscellaneous

In connection with Lazard’s services as financial advisor to Calpine with respect to the merger, Calpine agreed to pay Lazard a fee based on the merger consideration (given a merger consideration of $15.25, such amount was calculated to be approximately $21.625 million), of which a portion became payable upon the rendering of Lazard’s opinion and approximately $17.625 million is contingent upon the closing of the merger. Calpine has also agreed to reimburse Lazard for certain expenses incurred in connection with Lazard’s engagement and to indemnify Lazard and certain related persons under certain circumstances against various liabilities that may arise from or be related to Lazard’s engagement, including certain liabilities under United States federal securities laws.

Lazard, as part of its investment banking business, is continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements, leveraged buyouts, and valuations for estate, corporate and other purposes. In addition, in the ordinary course, Lazard and its respective affiliates and employees may trade securities of Calpine, Energy Capital Partners and the consortium co-investors and certain of their respective affiliates for their own accounts and for the accounts of their customers, may at any time hold a long or short position in such securities, and may also trade and hold securities on behalf of Calpine, Energy Capital Partners and the consortium co-investors and certain of their respective affiliates. The issuance of Lazard’s opinion was approved by the opinion committee of Lazard.

Lazard is an internationally recognized investment banking firm providing a full range of financial advisory and other services. Lazard was selected to act as investment banker to Calpine because of its qualifications, expertise and reputation in investment banking and mergers and acquisitions generally and in the independent power producer industry specifically, as well as its familiarity with the business of Calpine.

Calpine and Energy Capital Partners determined the merger consideration of $15.25 in cash per share of Calpine common stock, to be paid to the holders of shares of Calpine common stock (other than holders of excluded shares) in the merger, through arm’s-length negotiations, and the Calpine Board unanimously approved such merger consideration. Lazard did not recommend any specific consideration to the Calpine Board or any other person or indicate that any given consideration constituted the only appropriate consideration for the merger. Lazard’s opinion was one of many factors considered by the Calpine Board, as further described in the section entitled “The Merger (Proposal 1)—Recommendation of the Calpine Board; Reasons for the Merger” beginning on page 51 of this proxy statement.

 

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Certain Company Projections

Calpine does not as a matter of course make public projections as to future performance, earnings or other results due to the unpredictability of the underlying assumptions and estimates. However, in connection with the Calpine Board’s evaluation of the merger, Calpine’s senior management prepared and provided to the Calpine Board unaudited prospective financial information for fiscal years 2017 through 2021 based on June 2017 market forward prices, which assumed, among other things, prevailing forward market prices at face value and retail business margins consistent with recent performance and consistent with the Calpine Board’s and Calpine’s senior management’s historical views as to the future financial performance of Calpine, which we refer to as the “June 2017 Projections.” The June 2017 Projections also were provided to Lazard for its use and reliance in connection with its financial analyses and opinion, as described in the section entitled “—Opinion of Calpine’s Financial Advisor” beginning on page 57 of this proxy statement. In connection with the strategic alternatives review process, at the direction of the Calpine Board, Calpine’s senior management also prepared and provided to the Calpine Board for its review unaudited prospective financial information for fiscal years 2017 through 2021 based on February 2017 market forward prices, which assumed, among other things, that the Texas wholesale power market would improve beginning in fiscal year 2019 relative to prevailing market forward prices and Calpine’s retail growth initiatives would result in expanded retail business margins over time, which we refer to as the “February 2017 Marketing Projections.” The February 2017 Marketing Projections were provided to potential participants in the strategic alternatives review process that executed confidentiality agreements with Calpine (including Energy Capital Partners), in connection with their respective evaluations of a potential transaction beginning in April 2017 and to formulate indicative proposals. In May 2017, at the direction of the Calpine Board, Calpine’s senior management further prepared and provided to the Calpine Board for its review and to participants in the strategic alternatives review process updated unaudited prospective financial information to reflect revised capacity prices in the PJM market for the 2020/2021 planning year based on auction results published by the system operator in May 2017, as well as other changes related to plant-specific operational plans, including outage timing, utilizing similar assumptions as described above for the February 2017 Marketing Projections, which we refer to as the “Updated February 2017 Marketing Projections.” The February 2017 Marketing Projections were provided to Lazard in connection with the strategic alternatives review process and the Updated February 2017 Marketing Projections were provided to Lazard for its use and reliance in connection with its financial analyses, as further described in the section entitled “—Opinion of Calpine’s Financial Advisor” beginning on page 57 of this proxy statement. The summary of the unaudited prospective financial information is not being included in this proxy statement to influence a stockholder’s decision whether to adopt the merger agreement and thereby approve the merger, but is being included to provide Calpine’s stockholders with certain unaudited prospective financial information that was made available to the Calpine Board, Calpine’s financial advisor and the potential participants in the strategic alternatives review process who executed confidentiality agreements with Calpine (including Energy Capital Partners).

The unaudited prospective financial information was not prepared with a view toward public disclosure and, accordingly, does not necessarily comply with published guidelines of the SEC, the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of unaudited prospective financial information or U.S. generally accepted accounting principles, which we refer to as “GAAP.” PricewaterhouseCoopers LLP, Calpine’s independent, registered public accounting firm, has not audited, compiled or performed any procedures with respect to the unaudited prospective financial information and does not express an opinion or any form of assurance related thereto.

The unaudited prospective financial information, while presented with numerical specificity, reflects numerous estimates and assumptions that are inherently uncertain and beyond the control of Calpine’s management, including, among other things, Calpine’s future financial results, industry performance and activity, the regulatory environment, commodity prices, demand for energy, competition, general business, economic and financial conditions and matters specific to Calpine’s businesses, which may not be realized. The unaudited prospective financial information also reflects assumptions as to certain business decisions that are subject to change and, in many respects, subjective judgment, and thus is susceptible to multiple interpretations and

 

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periodic revisions based on actual experience and business developments. The unaudited prospective financial information should be evaluated, if at all, in light of the assumptions made by Calpine and in conjunction with other information regarding Calpine contained elsewhere in this proxy statement and Calpine’s public filings with the SEC. Calpine’s stockholders are urged to review Calpine’s SEC filings for a description of risk factors with respect to the business of Calpine. See the section entitled “Cautionary Statement Concerning Forward-Looking Information” beginning on page 28 of this proxy statement and the section entitled “Where You Can Find More Information” beginning on page 147 of this proxy statement. Calpine can give no assurance that the unaudited prospective financial information and the underlying estimates and assumptions will be realized. In addition, since the prospective financial information covers multiple years, such information by its nature, becomes less predictive with each successive year. Actual results may differ materially from those set forth below.

The unaudited prospective financial information also does not take into account any circumstances or events occurring after the date on which they were prepared and do not give effect to the transactions contemplated by the merger agreement, including the merger. Calpine can give no assurance that, had the unaudited prospective financial information been prepared either as of the date of the merger agreement or as of the date of this proxy statement, similar estimates and assumptions would be used. Except to the extent required by applicable law, Calpine does not intend to make publicly available any update or other revisions to the unaudited prospective financial information, even in the event that any or all of the underlying estimates and assumptions are shown to be in error, or to reflect changes in general economic or industry conditions.

The inclusion of the unaudited prospective financial information in this proxy statement should not be regarded as an indication that Calpine or any of its affiliates, advisors, officers, directors or other representatives or any other recipient of this information considered or now considers the unaudited prospective financial information to be necessarily predictive of actual future events or events which have occurred since the date of such forecasts, and the unaudited prospective financial information should not be relied upon as such. Neither Calpine nor any of its affiliates, advisors, officers, directors or other representatives can give any assurance that actual results will not differ materially from the unaudited prospective financial information. Neither Calpine nor any of its affiliates, advisors, officers, directors or other representatives has made or makes any representation to any stockholder of Calpine regarding the ultimate performance of Calpine compared to the information contained in the unaudited prospective financial information or that the unaudited prospective financial information will be achieved.

In light of the foregoing factors and the uncertainties inherent in the unaudited prospective financial information, and considering that the special meeting will be held several months after the unaudited prospective financial information was prepared, stockholders are cautioned not to place undue, if any, reliance on the unaudited prospective financial information. Since the date the unaudited prospective financial information was prepared, Calpine has made publicly available its actual results of operations for the quarter ended June 30, 2017 and the quarter ended September 30, 2017. You should review Calpine’s Current Reports on Form 8-K filed on July 28, 2017 and November 1, 2017 and Quarterly Reports on Form 10-Q for the quarter ended June 30, 2017, filed on July 28, 2017, and the quarter ended September 30, 2017, filed on November 1, 2017, to obtain this information. See the section entitled “Where You Can Find More Information” beginning on page 147 of this proxy statement.

 

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June 2017 Projections

The following is a summary of the June 2017 Projections:

 

     2017E     2018E     2019E     2020E     2021E  
     ($ in millions)  

Commodity Margin

   $ 2,749     $ 2,897     $ 2,817     $ 2,726     $ 2,732  

Royalties

     (25     (25     (25     (26     (26

Plant operating expense(1)

     (791     (794     (788     (790     (803

Sales, general and administrative expense(2)

     (139     (138     (139     (140     (143

Adjusted EBITDA from unconsolidated investments

     59       59       49       45       45  

Adjusted EBITDA

   $ 1,853     $ 1,999     $ 1,914     $ 1,814     $ 1,804  

Major maintenance expense and capital expenditures

     (442     (419     (434     (384     (399

Cash taxes and other

     (15     (17     (17     (17     (17

Adjusted Unlevered Free Cash Flow(3)

   $ 1,396     $ 1,563     $ 1,464     $ 1,414     $ 1,388  

Cash interest, net

     (621     (611     (584     (555     (550

Operating lease payments

     (26     (22     (31     (1     (1

Adjusted Free Cash Flow(4)

   $ 749     $ 930     $ 849     $ 858     $ 837  

 

(1) Shown net of major maintenance expense, stock-based compensation expense, non-cash loss on disposition of assets and other costs.
(2) Shown net of stock-based compensation expense and other costs.
(3) Excludes growth capital expenditures, non-recurring items, debt paydown and fees, operating lease payments and cash interest, net.
(4) Excludes growth capital expenditures, non-recurring items and debt paydown and fees.

The June 2017 Projections are based on various assumptions, including the following:

 

    market forward prices as of June 30, 2017 (which reflect information from commodity exchanges, broker quotes and Calpine’s estimates);

 

    market capacity prices based on actual auction results where known and, thereafter, assumed levels similar to recent auction clears;

 

    power and steam sales in accordance with existing (and, in the case of contract extensions, expected) contract terms and volumes;

 

    power generation plant unit characteristics (capacity, heat rates, variable operating and maintenance costs) consistent with current operations;

 

    retail sales and unit margins similar to recent retail sales and margins; and

 

    operating and overhead costs similar to current year expectations, adjusted for changes in plant dispatch expectations.

 

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Regulation G Reconciliation

The tables below provide a reconciliation of (a) net income (loss) attributable to Calpine to Adjusted EBITDA, (b) Adjusted Free Cash Flow and Adjusted Unlevered Free Cash Flow to net cash provided by operating activities and (c) Commodity Margin to income from operations (amounts shown in millions).

 

     2017E     2018E      2019E      2020E      2021E  

Net income (loss) attributable to Calpine(1)

   $ (194   $ 110      $ 66      $ 146      $ 120  

Add:

             

Net income attributable to the noncontrolling interest

     18       18        18        18        16  

Income tax expense

     11       20        16        22        21  

Debt extinguishment and other (income) expense, net

     69       37        47        30        37  

Interest expense

     621       611        584        555        550  

Depreciation and amortization expense

     725       694        678        656        653  

Major maintenance expense

     282       293        316        256        290  

Operating lease expense

     26       22        31        1        1  

Adjustments to reflect Adjusted EBITDA from unconsolidated investments

     36       35        35        35        35  

Stock-based compensation expense

     40       38        38        38        38  

Loss on dispositions of assets

     3       3        3        3        3  

Contract amortization

     178       103        77        50        36  

Other

     38       15        5        4        4  
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 1,853     $ 1,999      $ 1,914      $ 1,814      $ 1,804  
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

 

     2017E     2018E     2019E     2020E     2021E  

Net cash provided by operating activities

   $ 613     $ 814     $ 729     $ 729     $ 734  

Add:

          

Maintenance capital expenditures

     160       126       118       128       109  

Capitalized corporate interest

     (22     (14     (2     (2     (2

Adjustments to reflect Adjusted Free Cash Flow from unconsolidated investments and exclude the non-controlling interest

     (2     4       4       3       (4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted Free Cash Flow

   $ 749     $ 930     $ 849     $ 858     $ 837  

Interest expense

     621       611       584       555       550  

Operating lease expense

     26       22       31       1       1  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted Unlevered Free Cash Flow

   $ 1,396     $ 1,563     $ 1,464     $ 1,414     $ 1,388  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     2017E     2018E     2019E     2020E     2021E  

Income from operations(1)

   $ 525     $ 796     $ 731     $ 771     $ 744  

Add:

          

Plant operating expense

     1,098       1,112       1,129       1,071       1,118  

Depreciation and amortization expense

     725       694       678       656       653  

Sales, general and other administrative expense

     158       154       155       156       159  

Other operating expense

     85       54       63       34       34  

(Income) from unconsolidated subsidiaries

     (23     (25     (21     (19     (19

Contract amortization

     178       103       77       50       36  

Other

     3       9       5       7       7  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commodity Margin

   $ 2,749     $ 2,897     $ 2,817     $ 2,726     $ 2,732  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
(1) Mark-to-market adjustments are assumed to be nil.

 

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February 2017 Marketing Projections

The following is a summary of the February 2017 Marketing Projections:

 

     2017E     2018E     2019E     2020E     2021E  
     ($ in millions)  

Commodity Margin

   $ 2,759     $ 2,928     $ 2,973     $ 2,868     $ 2,890  

Royalties

     (25     (24     (25     (26     (27

Plant operating expense(1)

     (805     (786     (783     (783     (787

Sales, general and administrative expense(2)

     (136     (138     (139     (140     (142

Adjusted EBITDA from unconsolidated investments

     57       56       47       42       42  

Adjusted EBITDA

   $ 1,850     $ 2,036     $ 2,073     $ 1,960     $ 1,977  

Major maintenance expense and capital expenditures

     (436     (414     (404     (394     (421

Cash taxes and other

     (7     (12     (18     (20     (23

Adjusted Unlevered Free Cash Flow(3)

   $ 1,407     $ 1,609     $ 1,652     $ 1,546     $ 1,533  

Cash interest, net

     (625     (618     (588     (532     (517

Operating lease payments

     (26     (22     (31     (1     (1

Adjusted Free Cash Flow(4)

   $ 756     $ 969     $ 1,033     $ 1,013     $ 1,015  

 

(1) Shown net of major maintenance expense, stock-based compensation expense, non-cash loss on disposition of assets and other costs.
(2) Shown net of stock-based compensation expense and other costs.
(3) Excludes growth capital expenditures, non-recurring items, debt paydown and fees, operating lease payments and cash interest, net.
(4) Excludes growth capital expenditures, non-recurring items and debt paydown and fees.

The February 2017 Marketing Projections are based on various assumptions, including the following:

 

    market forward prices as of February 24, 2017 (which reflect information from commodity exchanges, brokers and Calpine’s estimates), adjusted to incorporate recovery in Texas market power prices beginning in 2019 due to potential for coal generating unit retirements that would lead to tighter supply and demand conditions;

 

    market capacity prices based on actual auction results where known and, thereafter, assumed levels similar to recent auction clears;

 

    power and steam sales in accordance with existing (and, in the case of contract extensions, expected) contract terms and volumes;

 

    power generation plant unit characteristics (capacity, heat rates, variable operating and maintenance costs) consistent with current operations;

 

    retail sales and margins expanding over time as a result of targeted retail growth initiatives; and

 

    operating and overhead costs similar to current year expectations, adjusted for changes in plan dispatch expectations.

 

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Regulation G Reconciliation

The tables below provide a reconciliation of (a) net income (loss) attributable to Calpine to Adjusted EBITDA, (b) Adjusted Free Cash Flow and Adjusted Unlevered Free Cash Flow to net cash provided by operating activities and (c) Commodity Margin to income from operations (amounts shown in millions).

 

     2017E     2018E      2019E      2020E      2021E  

Net income (loss) attributable to Calpine(1)

   $ (210   $ 148      $ 264      $ 292      $ 311  

Add:

             

Net income attributable to the noncontrolling interest

     18       18        18        18        16  

Income tax expense

     11       22        33        36        38  

Debt extinguishment and other (income) expense, net

     59       35        39        30        46  

Interest expense

     625       618        588        532        517  

Depreciation and amortization expense

     725       694        678        656        653  

Major maintenance expense

     301       285        264        265        279  

Operating lease expense

     26       22        31        1        1  

Adjustments to reflect Adjusted EBITDA from unconsolidated investments

     36       35        35        35        35  

Stock-based compensation expense

     40       38        38        38        38  

Loss on dispositions of assets

     3       3        3        3        3  

Contract amortization

     178       103        77        50        36  

Other

     38       15        5        4        4  
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 1,850     $ 2,036      $ 2,073      $ 1,960      $ 1,977  
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

 

     2017E     2018E     2019E     2020E     2021E  

Net cash provided by operating activities

   $ 645     $ 850     $ 891     $ 883     $ 879  

Add:

          

Maintenance capital expenditures

     135       129       140       129       142  

Capitalized corporate interest

     (22     (14     (2     (2     (2

Adjustments to reflect Adjusted Free Cash Flow from unconsolidated investments and exclude the non-controlling interest

     (2     4       4       3       (4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted Free Cash Flow

   $ 756     $ 969     $ 1,033     $ 1,013     $ 1,015  

Interest expense

     625       618       588       532       517  

Operating lease expense

     26       22       31       1       1  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted Unlevered Free Cash Flow

   $ 1,407     $ 1,609     $ 1,652     $ 1,546     $ 1,533  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     2017E     2018E     2019E     2020E     2021E  

Income from operations(1)

   $ 503     $ 841     $ 942     $ 908     $ 928  

Add:

          

Plant operating expense

     1,131       1,096       1,072       1,073       1,091  

Depreciation and amortization expense

     725       694       678       656       653  

Sales, general and other administrative expense

     158       176       155       156       158  

Other operating expense

     85       53       63       34       35  

(Income) from unconsolidated subsidiaries

     (23     (25     (21     (19     (19

Contract amortization

     178       103       77       50       36  

Other

     2       (10     7       10       8  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commodity Margin

   $ 2,759     $ 2,928     $ 2,973     $ 2,868     $ 2,890  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
(1) Mark-to-market adjustments are assumed to be nil.

 

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Updated February 2017 Marketing Projections

The following is a summary of the Updated February 2017 Marketing Projections:

 

     2017E     2018E     2019E     2020E     2021E  
     ($ in millions)  

Commodity Margin

   $ 2,759     $ 2,931     $ 2,978     $ 2,884     $ 2,929  

Royalties

     (25     (24     (25     (26     (27

Plant operating expense(1)

     (805     (780     (774     (769     (774

Sales, general and administrative expense(2)

     (136     (138     (139     (140     (142

Adjusted EBITDA from unconsolidated investments

     57       59       49       45       45  

Adjusted EBITDA

   $ 1,850     $ 2,047     $ 2,090     $ 1,993     $ 2,031  

Major maintenance expense and capital expenditures

     (436     (409     (398     (388     (397

Cash taxes and other

     (7     (12     (18     (21     (24

Adjusted Unlevered Free Cash Flow(3)

   $ 1,407     $ 1,626     $ 1,674     $ 1,584     $ 1,611  

Cash interest, net

     (625     (618     (587     (531     (515

Operating lease payments

     (26     (22     (31     (1     (1

Adjusted Free Cash Flow(4)

   $ 756     $ 986     $ 1,056     $ 1,052     $ 1,095  

 

(1) Shown net of major maintenance expense, stock-based compensation expense, non-cash loss on disposition of assets and other costs.
(2) Shown net of stock-based compensation expense and other costs.
(3) Excludes growth capital expenditures, non-recurring items, debt paydown and fees, operating lease payments and cash interest, net.
(4) Excludes growth capital expenditures, non-recurring items and debt paydown and fees.

The Updated February 2017 Marketing Projections are based on similar assumptions reflected in the February 2017 Marketing Projections, but for the following updates:

 

    capacity prices in the PJM market for the 2020/2021 planning year based on auction results published by the system operator in May 2017; and

 

    other changes related to plant-specific operations plans including outage timing.

In addition to the assumptions described above for the June 2017 Projections, the February 2017 Marketing Projections and the Updated February 2017 Marketing Projections, certain other assumptions were made, including assumptions regarding headcount, general maintenance costs and outage costs, taxable income after utilizing potential net operating losses and contracted or planned project divestitures.

 

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Regulation G Reconciliation

The tables below provide a reconciliation of (a) net income (loss) attributable to Calpine to Adjusted EBITDA, (b) Adjusted Free Cash Flow and Adjusted Unlevered Free Cash Flow to net cash provided by operating activities and (c) Commodity Margin to income from operations (amounts shown in millions).

 

     2017E     2018E      2019E      2020E      2021E  

Net income (loss) attributable to Calpine(1)

   $ (210   $ 157      $ 280      $ 323      $ 374  

Add:

             

Net income attributable to the noncontrolling interest

     18       18        18        18        16  

Income tax expense

     11       24        35        40        46  

Debt extinguishment and other (income) expense, net

     59       35        39        30        46  

Interest expense

     625       618        587        531        515  

Depreciation and amortization expense

     725       694        678        656        653  

Major maintenance expense

     301       285        264        264        264  

Operating lease expense

     26       22        31        1        1  

Adjustments to reflect Adjusted EBITDA from unconsolidated investments

     36       35        35        35        35  

Stock-based compensation expense

     40       38        38        38        38  

Loss on dispositions of assets

     3       3        3        3        3  

Contract amortization

     178       103        77        50        36  

Other

     38       15        5        4        4  
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 1,850     $ 2,047      $ 2,090      $ 1,993      $ 2,031  
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

 

     2017E     2018E     2019E     2020E     2021E  

Net cash provided by operating activities

   $ 645     $ 872     $ 920     $ 927     $ 968  

Add:

          

Maintenance capital expenditures

     135       124       134       124       133  

Capitalized corporate interest

     (22     (14     (2     (2     (2

Adjustments to reflect Adjusted Free Cash Flow from unconsolidated investments and exclude the non-controlling interest

     (2     4       4       3       (4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted Free Cash Flow

   $ 756     $ 986     $ 1,056     $ 1,052     $ 1,095  

Interest expense

     625       618       587       531       515  

Operating lease expense

     26       22       31       1       1  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted Unlevered Free Cash Flow

   $ 1,407     $ 1,626     $ 1,674     $ 1,584     $ 1,611  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     2017E     2018E     2019E     2020E     2021E  

Income from operations(1)

   $ 503     $ 852     $ 959     $ 942     $ 997  

Add:

          

Plant operating expense

     1,131       1,090       1,063       1,058       1,063  

Depreciation and amortization expense

     725       694       678       656       653  

Sales, general and other administrative expense

     158       154       155       156       158  

Other operating expense

     85       53       63       34       35  

(Income) from unconsolidated subsidiaries

     (23     (25     (21     (19     (19

Contract amortization

     178       103       77       50       36  

Other

     2       10       4       7       6  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commodity Margin

   $ 2,759     $ 2,931     $ 2,978     $ 2,884     $ 2,929  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
(1) Mark-to-market adjustments are assumed to be nil.

 

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Commodity Margin, Adjusted Free Cash Flow, Adjusted Unlevered Free Cash Flow and Adjusted EBITDA are non-GAAP financial measures that we use as measures of our performance and liquidity. These non-GAAP measures should be viewed as a supplement to and not a substitute for our GAAP measures of performance and liquidity, and the financial results calculated in accordance with GAAP and reconciliations from these results should be carefully evaluated.

Commodity Margin includes revenues recognized on our wholesale and retail power sales activity, electric capacity sales, renewable energy credit sales, steam sales, realized settlements associated with our marketing, hedging, optimization and trading activity, fuel and purchased energy expenses, commodity transmission and transportation expenses and environmental compliance expenses. We believe that Commodity Margin is a useful tool for assessing the performance of our core operations and is a key operational measure reviewed by our chief operating decision maker. Commodity Margin is not a measure calculated in accordance with GAAP and should be viewed as a supplement to and not a substitute for our results of operations presented in accordance with GAAP. Commodity Margin does not intend to represent income (loss) from operations, the most comparable GAAP measure, as an indicator of operating performance and is not necessarily comparable to similarly titled measures reported by other companies.

Adjusted EBITDA represents net loss attributable to Calpine before net (income) attributable to the noncontrolling interest, interest, taxes, depreciation and amortization, and is also adjusted for the effects of impairment losses, gains or losses on sales, dispositions or retirements of assets, any mark-to-market gains or losses from accounting for derivatives, adjustments to exclude the Adjusted EBITDA related to the noncontrolling interest, stock-based compensation expense, operating lease expense, non-cash gains and losses from foreign currency translations, major maintenance expense, gains or losses on the repurchase, modification or extinguishment of debt, non-cash GAAP-related adjustments to levelize revenues from tolling agreements and any unusual or non-recurring items plus adjustments to reflect the Adjusted EBITDA from our unconsolidated investments. We adjust for these items in our Adjusted EBITDA as our management believes that these items would distort their ability to efficiently view and assess our core operating trends. We believe that investors commonly adjust EBITDA information to eliminate the effects of restructuring and other expenses, which vary widely from company to company and impair comparability. Adjusted EBITDA is not intended to represent net income (loss) as defined by GAAP as an indicator of operating performance and is not necessarily comparable to similarly titled measures reported by other companies. We are presenting Adjusted EBITDA along with a reconciliation to Adjusted Unlevered Free Cash Flow to demonstrate the relationship between our traditional performance measure, Adjusted EBITDA, and our new liquidity measure, Adjusted Unlevered Free Cash Flow.

Adjusted Free Cash Flow represents cash flows from operating activities including the effects of maintenance capital expenditures, adjustments to reflect the Adjusted Free Cash Flow from unconsolidated investments and to exclude the noncontrolling interest and other miscellaneous adjustments such as the effect of changes in working capital. Adjusted Unlevered Free Cash Flow is calculated on the same basis as Adjusted Free Cash Flow but excludes the effect of cash interest, net, and operating lease payments, thus capturing the performance of our business independent of its capital structure. Adjusted Free Cash Flow and Adjusted Unlevered Free Cash Flow are presented because we believe they are useful measures of liquidity to assist in comparing financial results from period to period on a consistent basis and to readily view operating trends, as measures for planning and forecasting overall expectations and for evaluating actual results against such expectations and in communications with the Calpine Board and our shareholders, creditors, analysts and investors concerning our financial results. Adjusted Free Cash Flow and Adjusted Unlevered Free Cash Flow are liquidity measures and are not intended to represent cash flows from operations, the most directly comparable GAAP measure, and are not necessarily comparable to similarly titled measures reported by other companies.

Financing of the Merger

We anticipate the total funds needed to consummate the merger (including the funds required to pay to Calpine’s stockholders and the holders of other equity-based interests the amounts due to them under the merger

 

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agreement), and to pay all related fees and expenses, which would be approximately $5.6 billion, will be funded through a combination of the following:

 

    equity commitments by the Energy Capital Funds in an aggregate amount up to approximately $1.683 billion (excluding the implied value of 17,500,000 shares of Calpine common stock owned by Volt Energy), on the terms and subject to the conditions set forth in the equity commitment letter, as further described in the section entitled “—Equity Financing—Equity Commitment Letter” beginning on page 74 of this proxy statement;

 

    the subscription for limited partnership interests of Parent by the consortium co-investors for an aggregate amount equal to approximately $2.554 billion, on the terms and subject to the conditions set forth in the subscription agreements, as further described in the section entitled “—Equity Financing—Subscription Agreements” beginning on page 75 of this proxy statement;

 

    the subscription for limited partnership interests of Parent by additional consortium co-investors in an amount equal to approximately $68 million pursuant to a transfer of Volt Energy’s equity commitment in Parent; and

 

    the debt financing consisting of a bridge facility in an aggregate principal amount of up to $950 million, as further described in the section entitled “—Debt Financing—Bridge Commitment Letter” beginning on page 76 of this proxy statement.

The consummation of the merger is not conditioned upon Parent obtaining the proceeds of any financing.

We believe proceeds from the debt and equity financings, together with cash on hand of the surviving corporation, will be sufficient to consummate the merger, but we cannot assure you of that. Such amounts may be insufficient if, among other things, the debt financing sources fail to fund the bridge facility in breach of the bridge commitment letter or the definitive documents related to such facility, the Energy Capital Funds fail to contribute the amounts set forth in the equity commitment letter or the consortium co-investors fail to fund their capital commitments in accordance with the subscription agreements, in each case, in violation thereof, the surviving corporation’s cash on hand is less than expected, or the fees, expenses or other amounts required to be paid or reserved in connection with the merger are greater than anticipated.

Equity Financing

Equity Commitment Letter

Parent has entered into the equity commitment letter with the Energy Capital Funds pursuant to which the Energy Capital Funds have committed, on a several but not joint basis, on the terms and subject to the conditions of the equity commitment letter, to provide equity financing directly or indirectly in an aggregate amount up to approximately $1.683 billion, or such lesser amount as may be required by Parent to fund (a) a portion of the aggregate merger consideration pursuant to the merger agreement and (b) the payment of any and all fees and expenses required to be paid by Parent in connection with the merger and the financing thereof pursuant to and in accordance with the merger agreement.

Funding of the equity financing is subject to the conditions provided in the equity commitment letter, which include:

 

    the satisfaction in full or waiver by Parent, on or before the closing of the merger, of all conditions precedent to Parent’s obligations set forth in the merger agreement (other than those conditions that by their nature, are to be satisfied at the closing of the merger and other than any condition the failure of which to be satisfied is attributable primarily to a breach by Parent or Merger Sub of their respective representations, warranties, covenants or agreements contained in the merger agreement);

 

    the financing provided for by the bridge facility (or the alternative financing, as the case may be) has been funded or will be funded at closing if the equity financing is funded at closing by the Energy Capital Funds and the consortium co-investors; and

 

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    the proposed amendments to the existing revolving credit agreement have been approved by the requisite percentage of the lenders party to the existing revolving credit agreement and have been executed and delivered by all parties thereto and are fully effective subject solely to the concurrent closing of the merger and the payment of fees under the proposed amendments to the existing revolving credit agreement.

Subject to certain limitations, the obligations of each Energy Capital Fund to fund its portion of the equity financing under the equity commitment letter will terminate upon the earliest to occur of:

 

    the valid termination of the merger agreement in accordance with its terms (provided, that, if Parent or Calpine has made a claim that any termination of the merger agreement by Parent is not valid pursuant to the terms of the merger agreement, the obligation of each Energy Capital Fund to fund its portion of the equity financing will not terminate unless and until such time as such claim is finally satisfied or otherwise resolved by agreement of the parties thereto or a final, non-appealable judgment of a governmental entity of competent jurisdiction or Calpine accepts payment of the parent termination fee);

 

    the closing of the merger, so long as such Energy Capital Fund has funded its equity commitment under the equity commitment letter;

 

    commencement by Calpine of a lawsuit or other proceeding asserting any claim for payment under or in respect of the merger agreement, the limited guarantee, the equity commitment letter or the transactions contemplated by any of the foregoing against any affiliate of the Energy Capital Funds, subject to certain exceptions, including an action for specific performance under the equity commitment letter;

 

    Calpine accepts payment of the parent termination fee pursuant to the terms of the merger agreement; or

 

    Calpine accepts payment of any of its losses pursuant to the terms of the merger agreement or the limited guarantee.

Upon the valid termination of the equity commitment letter, no Energy Capital Fund shall have any further obligations or liabilities thereunder.

Calpine is an express third party beneficiary of the equity commitment letter, for the purpose of, in accordance with the terms and conditions of the merger agreement, seeking specific performance of the Energy Capital Funds’ obligation to fund the equity commitment to Parent (as further described in the section entitled “The Merger Agreement—Terms of the Merger Agreement—Specific Performance” beginning on page 126 of this proxy statement).

Subscription Agreements

In connection with Parent’s equity syndication, Parent GP has entered into subscription agreements with the consortium co-investors, pursuant to which the consortium co-investors have agreed, on the terms and subject to the conditions of the subscription agreements to subscribe for limited partnership interests of Parent for an aggregate amount equal to approximately $2.554 billion. Since August 17, 2017, Volt Energy has transferred approximately $68 million of its equity commitment in Parent to a new consortium co-investor, which entered into a subscription agreement with Parent GP in substantially the same form as the subscription agreements of the other consortium co-investors in order to acquire a limited partnership interest in Parent. On the terms and subject to the conditions of the subscription agreements and the Parent LPA, each consortium co-investor has agreed to, among other things:

 

    become a limited partner of Parent;

 

    adhere to, comply with, be bound by and receive the benefits of the terms of the Parent LPA;

 

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    make one or more cash contributions to the capital of the partnership in an amount equal to its capital commitment set forth in the subscription agreements to which the applicable consortium co-investor is a party; and

 

    make certain other payments in accordance with the terms of the Parent LPA.

Calpine is an express third party beneficiary of the subscription agreements, for the purpose of, in accordance with the terms and conditions of the merger agreement, seeking specific performance of the consortium co-investors’ obligations to fund the equity commitment to Parent (as further described in the section entitled “The Merger Agreement—Terms of the Merger Agreement—Specific Performance” beginning on page 126 of this proxy statement).

Debt Financing

Bridge Commitment Letter

In connection with the entry into the merger agreement, Volt Energy has obtained from Barclays the bridge commitment letter, pursuant to which Barclays has committed to provide Volt Energy with up to $950 million under the bridge facility to finance the transactions contemplated by the merger agreement. If funded, the bridge facility would be secured by a security interest in substantially all assets of Volt Energy. The bridge commitment letter provides that Barclays’ commitment thereunder will be automatically and immediately reduced by an amount specified therein for equity commitments received from co-investors in connection with Parent’s equity syndication efforts on or prior to the closing of the merger.

The availability of the bridge facility is subject to the following conditions:

 

    the execution and delivery of definitive loan documentation for the bridge facility;

 

    since the date of the merger agreement, there shall not have occurred a company material adverse effect (as defined in the section entitled “The Merger Agreement—Terms of the Merger Agreement—Representations and Warranties” beginning on page 101 of this proxy statement);

 

    consummation of the merger substantially concurrently with the funding of the bridge facility and in accordance with the terms of the merger agreement (without waiver or amendment thereof or any consent thereunder that is material and adverse to the interests of the lenders unless consented to by Barclays);

 

    immediately following the consummation of the merger and the other transactions contemplated by the merger agreement and related agreements, none of Volt Energy or any of its subsidiaries will have any indebtedness for borrowed money outstanding except as may be permitted under the merger agreement, the bridge facility and other indebtedness to be agreed in the definitive documents relating to the bridge facility;

 

    the Energy Capital Funds have funded, or are funding concurrently with the funding of the bridge facility, their equity commitments under the equity commitment letter;

 

    payment of fees and out-of-pocket expenses required to be paid on the closing date pursuant to the bridge commitment letter or the related fee letter;

 

    Barclays’ receipt of any financial statements provided by Calpine to Volt Energy or Parent pursuant to the merger agreement;

 

    Volt Energy shall have provided to the administrative agent for the bridge facility at least three business days prior to the closing date, such documentation and other information regarding Volt Energy, Parent and Calpine as required by regulatory authorities under applicable “know-your-customer” rules and regulations, including the PATRIOT Act;

 

    the administrative agent shall have received certain customary closing deliverables;

 

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    Volt Energy shall have furnished to the administrative agent certain specified collateral and security documentation; and

 

    the accuracy of certain specified representations of Volt Energy under the definitive financing documents relating to the bridge facility and of Calpine under the merger agreement.

Barclays’ commitment will expire upon the earliest to occur of (a) the closing of the merger, (b) the termination of the merger in accordance with its terms, (c) the termination of the bridge commitment letter by Volt Energy at any time in its sole discretion and (d) the outside date under the merger agreement (as it may be extended up to a date that is not beyond a date that is 15 months after acceptance by Volt Energy of the bridge commitment letter).

Amendment to Existing Revolving Credit Agreement

Also in connection with the merger, Calpine and Parent have agreed to the terms of amendments with the requisite percentage of the lenders under the existing revolving credit agreement to, among other things, (a) provide for an exception to the application of the “Change of Control” definition as it would otherwise apply to the consummation of the merger, (b) reduce the aggregate commitments thereunder and (c) extend the maturity date of the loans and commitments thereunder. In connection therewith, pursuant to a fifth amendment, dated as of September 15, 2017, to the existing revolving credit agreement, the requisite percentage of the lenders under the existing revolving credit agreement agreed, among other things, that the merger does not constitute a “Change of Control” under the existing revolving credit agreement. Also in connection therewith, pursuant to a sixth amendment, dated as of October 20, 2017, the requisite percentage of the lenders under the existing revolving credit agreement agreed, among other things, to extend the maturity date of certain revolving commitments to the earlier of (i) five years after the effective date of the Amendment and (ii) August 17, 2023, and to reduce the capacity under the revolving credit facility to $1.47 billion in the aggregate. The amendments will become effective upon the consummation of the merger.

Concurrently with the parties’ entry into the merger agreement, Parent obtained, from Barclays, a commitment to provide Parent with financing of $1.1 billion under a replacement revolving credit facility to replace and refinance the existing revolving credit agreement, in the event the proposed amendments to the existing revolving credit agreement were not obtained upon the consummation of the merger. This commitment was subsequently terminated in connection with the execution of the fifth amendment to the existing revolving credit agreement.

As of November 13, 2017, the last practicable date before the printing of this proxy statement, no alternative financing arrangements or alternative financing plans have been made in the event the debt financing contemplated by the bridge commitment letter is not available as anticipated. The documentation governing the bridge facility has not been finalized and, accordingly, the actual terms of the bridge facility (if funded) may differ from those described in this proxy statement.

Limited Guarantee

On the terms and subject to the conditions set forth in the limited guarantee, ECP III-A has agreed to guarantee to Calpine certain of Parent’s payment obligations under the merger agreement, including, among other things:

 

    the parent termination fee under certain specified circumstances;

 

    Parent’s obligations to indemnify and hold harmless Calpine and its related parties from and against any and all damages suffered or incurred by them in connection with the bridge commitment letter;

 

    reimbursement of applicable expenses in the event Parent fails to pay the parent termination fee when due, and in order to obtain such payment, Calpine commences a suit which results in a judgment against such other party for such fee; and

 

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    any losses of Calpine, if, as and when required to be paid by Parent in connection with the reimbursement of expenses arising out of Parent’s willful breach or fraud in connection with the merger agreement.

ECP III-A’s obligations under the limited guarantee are subject to an aggregate cap equal to $335 million. The limited guarantee will remain in full force and effect until the earliest of: (a) the effective time (including the payment by Parent of all amounts owed at closing); (b) such time as each and all of the obligations guaranteed by ECP III-A (subject to the cap amount) have been fully paid and performed in accordance with the terms and provisions of the merger agreement; and (c) the date that is three months following any valid termination of the merger agreement, unless prior to such date Calpine has commenced proceedings to enforce the limited guarantee, in which case, the limited guarantee will terminate upon and in accordance with the final completion of such proceedings and after payment in full of amounts due in accordance with such proceedings, if any.

Closing and Effective Time of the Merger

If the merger agreement is adopted at the special meeting of Calpine’s stockholders, then, assuming timely satisfaction of the other necessary closing conditions, we currently anticipate that the merger will be consummated during the first quarter of calendar year 2018. The merger will become effective upon the filing of the certificate of merger with the Secretary of State of the State of Delaware (or at such later date and time as Calpine and Parent may agree and specify in the certificate of merger). Since the merger is subject to various regulatory clearances and approvals and other conditions, it is possible that factors outside the control of Calpine or Parent could result in the merger being consummated at a later time, or not at all. There may be a substantial amount of time between the special meeting of Calpine’s stockholders and the consummation of the merger. We expect to consummate the merger promptly following the receipt of all required approvals and the satisfaction or waiver of the other conditions precedent as described in the merger agreement.

Payment of Merger Consideration and Surrender of Stock Certificates

Prior to the effective time, Parent will designate a bank or trust company reasonably acceptable to Calpine to act as the paying agent for Calpine’s stockholders in connection with the merger, which we refer to as the “paying agent.” At or prior to the effective time, Parent will deposit, or will cause to be deposited, with the paying agent an amount in cash equal to the aggregate merger consideration which the holders of record of shares of Calpine common stock are entitled to receive in accordance with the merger agreement.

As promptly as practicable after the effective time, but in no event more than three business days following the effective time, the surviving corporation will cause the paying agent to mail to each holder of record of shares of Calpine common stock immediately prior to the effective time (other than holders of certain uncertificated shares and/or excluded shares, as applicable), a letter of transmittal and instructions for use in effecting the surrender of the holder’s certificates representing such common stock (as defined in the section entitled “The Merger Agreement—Terms of the Merger Agreement—Payment Procedures” beginning on page 99 of this proxy statement) or transfer of such holder’s book-entry shares (as defined in the section entitled “The Merger Agreement—Terms of the Merger Agreement—Payment Procedures” beginning on page 99 of this proxy statement), in each case, in exchange for the merger consideration. Upon physical surrender of certificates (or an affidavit of loss in lieu thereof in accordance with the merger agreement) to the paying agent, together with a duly completed and validly executed letter of transmittal and other documentation reasonably required by the paying agent, or receipt of an “agent’s message” by the paying agent to effect the transfer and cancellation of the book-entry shares, in each case, in accordance with the terms of the letter of transmittal and related instructions, the holder of such certificates or such book-entry shares will be entitled to receive, and the surviving corporation will direct the paying agent to pay, in exchange therefor, cash in an amount equal to the aggregate merger consideration which such holder of Calpine common stock has the right to receive in respect of such certificates or book-entry shares.

 

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As promptly as practicable after the effective time, but in no event more than three business days following the effective time, the surviving corporation will cause the paying agent to mail to each holder of uncertificated shares of Calpine common stock (other than Parent, Merger Sub, Calpine (as treasury stock) and holders of dissenting shares (as defined in the section entitled “The Merger Agreement—Terms of the Merger Agreement—Merger Consideration” beginning on page 98 of this proxy statement)) materials advising such holder of the occurrence of the effective time and the conversion of his, her or its shares of Calpine common stock into the right to receive the merger consideration and instructions for use in effecting the surrender of the uncertificated shares (as defined in the section entitled “The Merger Agreement—Terms of the Merger Agreement—Payment Procedures” beginning on page 99 of this proxy statement). Upon receipt of documentation regarding the surrender of such uncertificated shares by the paying agent to effect the transfer and cancellation of the uncertificated shares, in each case in accordance with the mailed materials and instructions, the holder of such uncertificated shares will be entitled to receive, and the surviving corporation will direct the paying agent to pay, in exchange therefor, cash in an amount equal to the aggregate merger consideration which such holder of shares of Calpine common stock has the right to receive in respect of such uncertificated shares.

For further information, see the section entitled “The Merger Agreement—Terms of the Merger AgreementPayment Procedures” beginning on page 99 of this proxy statement.

You should not return your stock certificates with the enclosed proxy card, and you should not forward your stock certificates to the paying agent without a letter of transmittal.

You will not be entitled to receive the per share merger consideration until you deliver a duly completed and validly executed letter of transmittal and other documentation reasonably required by the paying agent, or paying agent’s receipt of an “agent’s message” to effect the transfer and cancellation of the book-entry shares (and, in each case, such other evidence, if any, of transfer as Parent or paying agent may reasonably request), or other documentation with respect to the surrender of certain uncertificated shares (and such other evidence, if any, of transfer as Parent or paying agent may reasonably request), to the paying agent. If your shares of Calpine common stock are certificated, you must also surrender your stock certificate or certificates (or an affidavit of loss in lieu thereof in accordance with the merger agreement), a duly completed and executed letter of transmittal and other documentation reasonably required by the paying agent. If ownership of your shares of Calpine common stock is not registered in the transfer records of Calpine, a check for any cash to be delivered will only be issued if the applicable letter of transmittal and other documentation reasonably required by the paying agent is accompanied by all documents required to evidence and effect such transfer and the person requesting such payment must pay any transfer or other taxes required to be paid by reason of the payment of the merger consideration in respect thereof or establish to the reasonable satisfaction of the surviving corporation that such taxes have been paid or are not applicable.

Interests of Certain Persons in the Merger

Overview

Certain of Calpine’s directors and executive officers may be deemed to have interests in the transactions contemplated by the merger agreement that are different from, or in addition to, those of Calpine’s stockholders generally. These interests may present these individuals with certain potential conflicts of interest. In evaluating and negotiating the merger agreement and the merger, and in recommending that the merger agreement be adopted by Calpine’s stockholders, the Calpine Board was aware of these interests and considered them, among other matters that are described in the section entitled “—Recommendation of the Calpine Board; Reasons for the Merger” beginning on page 51 of this proxy statement.

These interests are described in more detail below, and certain of them are quantified in the tables that follow the narrative below and in the section entitled “Advisory Vote on Golden Parachute Compensation (Proposal 3)” beginning on page 129 of this proxy statement. The dates used below to quantify these interests have been selected for illustrative purposes only and do not necessarily reflect the dates on which certain events will occur.

 

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As described below, none of Calpine’s executive officers are entitled to receive an excise tax gross-up payment under any plan or agreement.

In connection with the merger, as of the date of this proxy statement, no member of Calpine’s management has entered into an employment agreement or other agreement or commitment with Parent or its affiliates with respect to continuing employment, nor has any member of Calpine’s management entered into an equity rollover agreement or other agreement or commitment with Parent with respect to a co-investment with Parent in Calpine. It is possible that, before the closing of the merger, arrangements with respect to continuing employment after the merger may be entered into with one or more members of Calpine’s management. However, the consummation of the merger is not contingent upon entering into any such arrangement.

Equity Awards

Stock Options

At the effective time, each outstanding company option, whether vested or unvested, will be fully vested and canceled and converted into the right to receive an amount in cash, without interest and less any applicable withholding taxes, determined by multiplying the excess, if any, of $15.25 over the applicable exercise price per share of such company option by the number of shares of Calpine common stock subject to such company option.

The following table sets forth, for each of Calpine’s named executive officers, the other executive officers of Calpine as a group and the non-employee directors of Calpine, as applicable, the number of shares of Calpine common stock subject to unvested company options, as well as the approximate value of such company options. The amounts specified below are based on the number of awards outstanding as of November 9, 2017, that would vest as a result of the merger assuming the merger closes on December 31, 2017, excluding any company options that are expected to vest in accordance with their terms prior to such date.

 

Name

   Number of
Shares Subject
to Unvested
Options (#)(1)
     Value of
Unvested
Options ($)(2)
 

Named Executive Officers

     

John B. (Thad) Hill III

     308,060      $ 1,085,638  

Zamir Rauf

     108,001      $ 384,484  

W. Thaddeus Miller

     146,996      $ 523,306  

W.G. (Trey) Griggs III

     88,633      $ 315,533  

Charles M. Gates

     79,553      $ 283,209  

Other Executive Officers as a Group (3 persons)

     78,611      $ 279,855  

Non-Employee Directors as a Group (8 persons)

     —          —    

 

(1) This column represents the number of unvested company options that have an exercise price per share below $15.25 and that will become vested and converted into the right to receive a cash payment pursuant to the merger agreement, assuming an effective time of December 31, 2017.
(2) This column represents, with respect to each company option described in (1) above, the value of the cash payment with respect to such option, determined by the product of (a) the excess of (i) the merger consideration of $15.25 over (ii) the applicable exercise price per share of such company option, multiplied by (b) the number of shares of Calpine common stock subject to such company option. The column shows the aggregate of such products for all such company options held by each executive officer or director.

Restricted Shares

At the effective time, each outstanding company restricted share will be fully vested and canceled and converted into the right to receive an amount in cash, without interest and less any applicable withholding taxes, equal to $15.25.

 

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The following table sets forth, for each of Calpine’s named executive officers, the other executive officers of Calpine as a group and the non-employee directors of Calpine, as applicable, the number of company restricted shares, as well as the approximate value of those shares. The amounts specified below are based on the number of company restricted shares outstanding as of November 9, 2017, that would vest as a result of the merger assuming the merger closes on December 31, 2017, excluding any company restricted shares that are expected to vest in accordance with their terms prior to such date.

 

Name

   Number of
Company
Restricted

Shares (#)(1)
     Value of
Company
Restricted

Shares ($)(2)
 

Named Executive Officers

     

John B. (Thad) Hill III

     126,973      $ 1,936,338  

Zamir Rauf

     43,312      $ 660,508  

W. Thaddeus Miller

     —          —    

W.G. (Trey) Griggs III

     36,091      $ 550,388  

Charles M. Gates

     19,900      $ 303,475  

Other Executive Officers as a Group (3 persons)

     42,254      $ 644,374  

Non-Employee Directors as a Group (8 persons)

     —          —    

 

(1) This column represents the number of unvested company restricted shares that will become fully vested and will be canceled and converted into the right to receive a cash payment pursuant to the merger agreement, assuming an effective time of December 31, 2017.
(2) This column represents the value of the cash payment with respect to the unvested company restricted shares described in (1) above, determined by the product of (a) the merger consideration of $15.25 and (b) the number of such company restricted shares.

Restricted Stock Units

At the effective time, each outstanding company restricted stock unit issued by Calpine, whether vested or unvested, will be fully vested and canceled and converted into the right to receive an amount in cash, without interest and less any applicable withholding taxes, determined by multiplying $15.25 by the number of shares of Calpine common stock subject to such company restricted stock unit.

 

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The following table sets forth, for each of Calpine’s named executive officers, the other executive officers of Calpine as a group and the non-employee directors of Calpine, as applicable, the number of shares of Calpine common stock subject to unvested outstanding company restricted stock units, as well as the approximate value of such company restricted stock units. The amounts specified below are based on the number of awards outstanding as of November 9, 2017, that would vest as a result of the merger assuming the merger closes on December 31, 2017, excluding any company restricted stock units that are expected to vest in accordance with their terms prior to such date.

 

Name

   Number of
Shares Subject
to Unvested
Company
Restricted
Stock Units
(#)(1)
     Value of
Unvested
Company
Restricted Stock
Units ($)(2)
 

Named Executive Officers

     

John B. (Thad) Hill III

     118,633      $ 1,809,153  

Zamir Rauf

     43,805      $ 668,026  

W. Thaddeus Miller

     59,622      $ 909,236  

W.G. (Trey) Griggs III

     35,950      $ 548,238  

Charles M. Gates

     32,267      $ 492,072  

Other Executive Officers as a Group (3 persons)

     71,740      $ 1,094,035  

Non-Employee Directors as a Group (8 persons)

     71,485      $ 1,090,146  

 

(1) This column represents the number of unvested company restricted stock units that will become fully vested and will be canceled and converted into the right to receive a cash payment pursuant to the merger agreement, assuming an effective time of December 31, 2017.
(2) This column represents the value of the cash payment with respect to the unvested company restricted stock units described in (1) above, determined by the product of (a) the merger consideration of $15.25 and (b) the number of shares of Calpine common stock to such outstanding company restricted stock units.

Performance Stock Units

At the effective time, each outstanding company performance stock unit issued by Calpine, whether vested or unvested, will be fully vested and canceled and converted into the right to receive an amount in cash, without interest and less any applicable withholding taxes, determined by multiplying $15.25 by the number of shares of Calpine common stock subject to such company performance stock unit. The number of shares subject to each company performance stock unit will be determined by assuming that performance for the full or cumulative performance period is the higher of the target and actual performance (as determined by Calpine based upon performance up until the closing of the merger).

 

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The following table sets forth, for each of Calpine’s named executive officers and the other executive officers of Calpine as a group, as applicable, the number of shares of Calpine common stock subject to unvested outstanding company performance stock units, and the approximate value of each of those awards. The amounts specified below are based on the number of awards outstanding as of November 9, 2017, that would vest as a result of the merger, assuming the merger closes on December 31, 2017, excluding any company performance stock units that are expected to vest in accordance with their terms prior to such date.

 

Name

   Number of Shares
Subject to Unvested
Company

Performance Stock
Units (#)(1)
     Value of Unvested
Company

Performance
Stock Units ($)(2)
 

Named Executive Officers

     

John B. (Thad) Hill III

     315,647      $ 4,813,617  

Zamir Rauf

     114,075      $ 1,739,644  

W. Thaddeus Miller

     47,520      $ 724,680  

W.G. (Trey) Griggs III

     95,256      $ 1,452,654  

Charles M. Gates

     55,568      $ 847,412  

Other Executive Officers as a Group (3 persons)

     75,563      $ 1,152,336  

Non-Employee Directors as a Group (8 persons)

     —          —    

 

(1) This column represents the number of unvested company performance stock units that will become fully vested and will be canceled and converted into the right to receive a cash payment pursuant to the merger agreement, assuming an effective time of December 31, 2017. The merger agreement provides that the number of company performance stock units actually paid will be based on the higher of the target and actual performance (as determined by Calpine based upon performance up until the closing of the merger). Amounts above are calculated assuming achievement of the target level of performance, although the performance level ultimately achieved (and on which payouts are based) may exceed target. The named executive officers and our other executive officers may earn up to 200% of the target number of company performance stock units based upon achievement of performance goals under the applicable award agreements for grants in 2015 and 2016 and up to 150% of the target number of company performance stock units based upon achievement of performance goals under the applicable award agreements for grants in 2017.
(2) This column represents the value of the cash payment with respect to the unvested company performance stock units described in (1) above, determined by the product of (a) the merger consideration of $15.25 and (b) the number of shares of Calpine common stock subject to such company performance stock units (determined based upon achievement of the target level of performance as described above).

For additional information regarding the nature of each director’s and executive officer’s beneficial ownership of Calpine common stock, see the section entitled “Security Ownership of Certain Beneficial Owners and Management” beginning on page 136 of this proxy statement.

Calpine Incentive Plan

Each of Calpine’s executive officers participates in Calpine’s annual incentive program, the Calpine Incentive Plan. Each executive officer has an individual target award opportunity under the Calpine Incentive Plan, expressed as a percentage of eligible earnings. The target bonus opportunities for our executive officers range from 50% to 110% of base salary. Based upon achievement of Calpine’s corporate performance goals that are established by the Calpine Board’s Compensation Committee, each executive officer will receive, following the applicable plan year, a payment of between 60% and 200% of his or her target bonus opportunity, provided that the minimum thresholds have been met.

Pursuant to the merger agreement, Parent or the surviving corporation will pay, or will cause one of its subsidiaries to pay, each Calpine employee, including any executive officer, who is terminated without cause

 

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during the period commencing on closing and ending on the date on which bonuses under certain annual incentive plans are actually paid, in addition to any severance to which such Calpine employee is otherwise entitled pursuant to any company benefit plan, a pro-rata bonus for the fiscal year in which the effective time occurs based on the greater of target or actual achievement of pro-rata performance targets for the number of days that have elapsed in such fiscal year as of such Calpine employee’s date of termination.

For further information with respect to the value of pro-rata bonus payments to be made to the named executive officers under the Calpine Incentive Plan and the merger agreement, see the section entitled “Advisory Vote on Golden Parachute Compensation (Proposal 3)” beginning on page 129 of this proxy statement.

Severance Plan

Under the Amended and Restated Change in Control and Severance Benefits Plan, which we refer to as the “severance plan,” each of Calpine’s executive officers is eligible for certain post-employment benefits, which vary depending upon (a) the tier assigned to the executive and (b) whether a change in control occurs. As of December 31, 2016, our Chief Executive Officer, Mr. Hill, participated as a Tier 1 participant and Messrs. Rauf, Griggs and Gates participated as Tier 3 participants in the severance plan. On May 16, 2017, Calpine entered into an amended and restated employment agreement with Mr. Hill, which we refer to as the “Hill employment agreement,” pursuant to which the severance and change in control payments thereunder are in lieu of, and not in addition to, any severance or change in control payments under the severance plan. See the section entitled “—Employment Agreement with Thad Hill” beginning on page 85 of this proxy statement. Any severance benefits for which Mr. Miller may be eligible would be provided under his amended employment agreement until its expiration on December 31, 2017. See the section entitled “—Employment Agreement with Thad Miller” beginning on page 87 of this proxy statement.

The severance plan provides that in the event a participant’s employment is terminated by Calpine without “cause,” or by such participant for “good reason” (each as defined in the severance plan and, in the case of “good reason,” as summarized below) within 24 months following a change in control or within six months following a potential change in control (provided that a change in control occurs within nine months following such potential change in control), such participant (or his or her beneficiary) is entitled to receive, subject to certain conditions outlined in the severance plan:

 

    a lump sum payment within 60 days following termination in an amount equal to 2.99 times (in the case of a Tier 1, Tier 2 or Tier 3 participant) or 1.99 times (in the case of a Tier 4 participant) the sum of (a) the participant’s highest annual salary in the three years preceding the termination and (b) the participant’s target bonus for the year of termination or for the year in which the change in control occurred, whichever is larger; plus

 

    in the case of Tier 1 participants only, a pro-rated annual bonus for the year of termination, to be paid at such time as Calpine pays annual bonuses generally; plus

 

    a lump sum payment for all “accrued obligations,” defined as all unused vacation time and all accrued but unpaid compensation earned by such participant as of the termination date, to be paid as soon as practicable following the termination date; and

 

    continued coverage for the participant and his or her dependents under all health care, medical, dental and life insurance plans and programs (excluding disability) maintained by Calpine under which the participant was covered immediately prior to his or her termination date, to be provided (concurrently with any health care benefit required under COBRA), in the case of a Tier 1, Tier 2 or Tier 3 participant, for a period of 36 months following termination, and, in the case of a Tier 4 participant, for a period of 24 months following termination, at the same cost sharing between Calpine and such participant as applies to a similarly situated active employee.

 

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In addition, participants are also entitled to receive outplacement benefits at Calpine’s expense beginning on such participant’s termination date for a period of 24 months (Tier 1), 18 months (Tier 2 and Tier 3) or 12 months (Tier 4).

“Good reason” has the meaning in the participant’s employment agreement, if applicable, or otherwise generally means:

 

    an assignment of a position that is of a lesser rank than held by the participant prior to the assignment and that results in the participant ceasing to be an executive officer of a company with securities registered under the Exchange Act;

 

    a material reduction in the participant’s base salary or target bonus opportunity in effect the day prior to the effective date of the severance plan (i.e., November 4, 2013); or

 

    any change of more than 50 miles in the location of the principal place of employment of the participant immediately prior to the effective date of such change.

A participant cannot resign for good reason if any of the actions described in the first and second bullet points immediately above was an isolated and inadvertent action not taken in bad faith by Calpine and if it is remedied by Calpine within 30 days after receipt of the participant’s written notice of such action (or, if the matter is not capable of remedy within 30 days, then within a reasonable period of time following such 30 day period, provided that Calpine has commenced such remedy within such 30-day period). Furthermore, for any action, good reason will cease to exist on the 60th day following the later of the occurrence or participant’s knowledge of such action, unless the participant has given Calpine written notice thereof prior to such date.

As a condition to receiving benefits under the severance plan, participants will be subject to certain conditions, including entering into non-solicitation, non-disclosure, non-disparagement and release agreements with Calpine, pursuant to which non-solicitation and non-disparagement covenants in favor of Calpine apply during the employment term and for the post-termination period following a change-in-control-related termination for 36 months (for Tier 1, Tier 2 and Tier 3 participants) and 24 months (for Tier 4 participants).

Tier 1, Tier 2, Tier 3 and Tier 4 participants are not entitled to a gross-up payment in the event that any benefit or payment by Calpine (whether paid or payable or distributed or distributable pursuant to the terms of the severance plan or otherwise, including any acceleration of vesting or payment) is determined to be subject to the excise tax imposed by Section 4999 of the United States Internal Revenue Code of 1986, which we refer to as the “Internal Revenue Code.” If any amounts will become subject to the excise tax imposed by Section 4999 of the Internal Revenue Code, then such amounts will be reduced so as not to become subject to such excise tax, but only if the net amount of such payments as so reduced is greater than or equal to the net amount of such payments without such reduction. If any amounts remain subject to the excise tax following any such reduction, Calpine’s deduction for such amounts may be limited as a result of Section 280G of the Internal Revenue Code.

The closing of the merger will constitute a change in control under the severance plan.

For further information with respect to the value of severance and other benefits to which the named executive officers may become entitled under the severance plan, see the section entitled “Advisory Vote on Golden Parachute Compensation (Proposal 3)” beginning on page 129 of this proxy statement. The value of severance and other benefits to which the three other executive officers of Calpine as a group may become entitled under the severance plan, using the assumptions set forth in the section entitled “Advisory Vote on Golden Parachute Compensation (Proposal 3)” beginning on page 129 of this proxy statement, is an amount of cash severance equal to $4,031,304.69 and perquisites/benefits equal to $440,491.78.

Employment Agreement with Thad Hill

Following the May 15, 2017 expiration of Mr. Hill’s November 6, 2013 employment agreement, Calpine entered into the Hill employment agreement with Mr. Hill on May 16, 2017. Under the Hill employment

 

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agreement, Mr. Hill is entitled to certain severance and change in control payments in lieu of, and not in addition to, any severance or change in control payments under the severance plan if he is terminated by Calpine without “cause” or if he resigns for “good reason” (each as defined in the Hill employment agreement and, in the case of “good reason,” as summarized below) during the 24-month period following a change in control of Calpine or within the six-month period following a potential change in control (provided a change in control occurs within nine months following the potential change in control). The severance and change in control payments under the Hill employment agreement are identical to payments to which Mr. Hill would have been entitled as a Tier 1 participant under the severance plan as discussed in the section entitled “—Severance Plan” beginning on page 84 of this proxy statement, except that Mr. Hill is entitled to monthly payments equal to the premiums paid by other former employees for health plan coverage for 36 months, as well as a tax gross-up on such payments, in lieu of continued coverage under Calpine’s benefit plans, and he would not be required to execute a release agreement with Calpine as a condition of Mr. Hill’s receipt of his severance or change in control payments. In the Hill employment agreement, Mr. Hill affirmed his commitment to the restrictive covenants set forth in the restrictive covenant agreement he previously entered into with Calpine, which includes 12-month post-termination non-competition and non-solicitation covenants, as well as non-disparagement and confidentiality covenants.

For purposes of Mr. Hill’s employment agreement, “good reason” generally means:

 

    an assignment of a position that is of a lesser rank than held Mr. Hill prior to the assignment and that results in Mr. Hill ceasing to be an executive officer of a company with securities registered under the Exchange Act, or ceasing to be President and Chief Executive Officer of Calpine;

 

    a material diminution in Mr. Hill’s duties or responsibilities;

 

    the assignment to Mr. Hill of duties inconsistent with Mr. Hill’s title or responsibilities;

 

    failure by Calpine to nominate Mr. Hill for election as a Calpine Board member and use its best efforts to have him elected and re-elected;

 

    failure to cause a successor to Calpine’s business or substantially all of Calpine’s assets to assume the employment agreement;

 

    a material reduction in Mr. Hill’s base salary or target bonus opportunity; or

 

    any change of more than 30 miles in the location of the principal place of employment of Mr. Hill immediately prior to the effective date of such change.

Mr. Hill cannot resign for good reason if any of the actions described in the first, second and third bullet points immediately above was an isolated and inadvertent action not taken in bad faith by Calpine and if it is remedied by Calpine within 30 days after receipt of Mr. Hill’s written notice of such action (or, if the matter is not capable of remedy within 30 days, then within a reasonable period of time following such 30 day period, provided that Calpine has commenced such remedy within such 30-day period). Furthermore, for any action, good reason will cease to exist on the 60th day following the later of the occurrence or Mr. Hill’s knowledge of such action, unless Mr. Hill has given Calpine written notice thereof prior to such date.

The Hill employment agreement provides that if any benefits payable to Mr. Hill, whether paid or payable or distributed or distributable pursuant to the terms of the Hill employment agreement or otherwise, including any acceleration of vesting or payment, are subject to the excise tax imposed by Section 4999 of the Internal Revenue Code, then such amounts will be reduced so as not to become subject to such excise tax, but only if the net amount of such payments as so reduced is greater than or equal to the net amount of such payments without such reduction. If any amounts remain subject to the excise tax following any such reduction, Calpine’s deduction for such amounts may be limited as a result of Section 280G of the Internal Revenue Code.

 

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Employment Agreement with Thad Miller

On December 18, 2015, Calpine entered into an amended and restated employment agreement with Mr. Miller, which will expire on December 31, 2017, and which we refer to as the “Miller employment agreement.” The Miller employment agreement provides that in the event Mr. Miller is terminated by Calpine without “cause” or if he resigns for “good reason” (each as defined in the Miller employment agreement and, in the case of “good reason,” as summarized below), during the 24-month period following a change in control of Calpine or within the six-month period following a potential change in control (provided a change in control occurs within nine months following the potential change in control), he will be entitled to certain severance payments and benefits, including a prorated bonus for the year in which such termination occurs; a lump sum cash severance payment within 70 days following termination equal to three times the sum of (a) his highest base salary in the three years preceding termination and (b) his target bonus with respect to the year of termination or for the year in which the change in control occurred, whichever is larger, to be paid at such time as Calpine pays annual bonuses generally; continuation of certain health and welfare benefits for a period of three years following the date of termination; and outplacement services for a period of up to 18 months following such termination. Mr. Miller is not required to execute a release agreement with Calpine as a condition of his receipt of his severance or change in control payments, and he will not be subject to post-employment non-competition or non-solicitation covenants following a change in control (although he will be subject to a non-disparagement covenant).

For purposes of Mr. Miller’s employment agreement, “good reason” generally means:

 

    an assignment of a position that is of a lesser rank than held Mr. Miller prior to the assignment and that results in Mr. Miller ceasing to be an executive officer of a company with securities registered under the Exchange Act, or ceasing to be Executive Vice President and Chief Legal Officer of Calpine;

 

    a diminution in Mr. Miller’s duties or responsibilities;

 

    the assignment to Mr. Miller of duties inconsistent with Mr. Miller’s title or responsibilities;

 

    failure to cause a successor to Calpine’s business or substantially all of Calpine’s assets to assume the employment agreement;

 

    a material reduction in Mr. Miller’s base salary or target bonus opportunity; or

 

    any change of more than 30 miles in the location of the principal place of employment of Mr. Miller immediately prior to the effective date of such change.

The Miller employment agreement provides that Mr. Miller cannot resign for good reason if any of the actions described in the first, second and third bullet points immediately above was an isolated and inadvertent action not taken in bad faith by Calpine and if it is remedied by Calpine within 30 days after receipt of Mr. Miller’s written notice of such action (or, if the matter is not capable of remedy within 30 days, then within a reasonable period of time following such 30 day period, provided that Calpine has commenced such remedy within such 30-day period). Furthermore, for any action, good reason will cease to exist on the 60th day following the later of the occurrence or Mr. Miller’s knowledge of such action, unless Mr. Miller has given Calpine written notice thereof prior to such date.

The Miller employment agreement provides that Mr. Miller is not entitled to a gross-up payment in the event that any benefit or payment by Calpine received by Mr. Miller is determined to be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code. If any amounts will become subject to the excise tax imposed by Section 4999 of the Internal Revenue Code, then such amounts will be reduced so as not to become subject to such excise tax, but only if the net amount of such payments as so reduced is greater than or equal to the net amount of such payments without such reduction. If any amounts remain subject to the excise tax following any such reduction, Calpine’s deduction for such amounts may be limited as a result of Section 280G of the Internal Revenue Code.

 

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In anticipation of the expiration of the Miller employment agreement on December 31, 2017, it is contemplated that Calpine will enter into a letter agreement with Mr. Miller. It is contemplated that such letter agreement will provide that effective January 1, 2018, (a) such letter agreement will replace and supersede the Miller employment agreement and govern Mr. Miller’s terms of employment with Calpine, (b) he will remain employed by Calpine on an at-will basis, (c) he will be a Tier 3 participant under the severance plan and (d) he will continue to receive an annual base salary and be eligible for incentive compensation and employee benefits as currently provided for in the Miller employment agreement.

Employee Matters

Under the merger agreement, Parent is obligated to provide, or to cause to be provided, each employee of Calpine and its subsidiaries who is employed as of immediately prior to the effective time and who may continue to be employed following the effective time, including Calpine’s executive officers, with certain additional benefits following the closing of the merger. These benefits are further described in the section entitled “The Merger AgreementTerms of the Merger AgreementEmployee Matters” beginning on page 115 of this proxy statement.

Insurance and Indemnification of Directors and Officers

Section 145 of the DGCL provides that a Delaware corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe the person’s conduct was unlawful. The indemnity may include expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit or proceeding.

A Delaware corporation may also indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification is permitted in respect of any claim, issue or matter as to which such person is adjudged to be liable to the corporation unless and only to the extent that the Delaware Court of Chancery or the court in which such action or suit was brought determines upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Delaware Court of Chancery or such other court deems proper. In addition, such indemnity may include expenses (including attorneys’ fees) actually and reasonably incurred by the person in connection with the defense or settlement of such action or suit.

Expenses (including attorneys’ fees) incurred by an officer or director of a Delaware corporation in defending any civil, criminal, administrative or investigative action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it is ultimately determined that such person is not entitled to be indemnified by the corporation.

To the extent that a present or former director or officer of a Delaware corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to above, or in defense of any claim,

 

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issue or matter thereby, the corporation must indemnify such director or officer against expenses (including attorneys’ fees) which such director or officer has actually and reasonably incurred.

Section 102(b) of the DGCL permits a corporation to provide for elimination or limitation of personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except that such provisions may not eliminate or limit the liability of a director:

 

    for any breach of the director’s duty of loyalty to the corporation or its stockholders;

 

    for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;

 

    under Section 174 of the DGCL;

 

    for any transaction from which the director derived an improper personal benefit; or

 

    for any act or omission occurring prior to the date when such provision becomes effective.

Calpine’s amended and restated certificate of incorporation provides that, to the fullest extent permitted by the DGCL, as amended or interpreted from time to time, a director of Calpine will not be liable to Calpine or its stockholders for monetary damages for breach of fiduciary duty as a director.

Under the merger agreement, the surviving corporation is obligated to:

 

    indemnify and hold harmless each person who was, is on August 17, 2017 or becomes during the period from August 17, 2017 through the closing date (a) a director or officer of Calpine or its subsidiaries, (b) a director, officer or trustee of another entity (but only to the extent that such person is or was serving in such capacity at the request of Calpine) or (c) an employee or agent of Calpine or any of its subsidiaries, in connection with any threatened, asserted, pending or completed action, suit or proceeding, whether instituted by any party to the merger agreement, any governmental entity or any other person, and whether civil, criminal, administrative, investigative or otherwise, and any judgments, fines, penalties and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such judgments, fines, penalties or amounts paid in settlement) resulting therefrom arising out of acts or omissions or otherwise relating to, matters that relate to such indemnified party’s duties or service as a director, officer, trustee, employee, agent or fiduciary of Calpine, any of its subsidiaries or any employee benefit plan maintained by any of the foregoing or any other person at or prior to the effective time; and

 

    promptly pay on behalf of or, within five business days after any request for advancement, advance to each of the indemnified parties any expenses incurred in defending, serving as a witness with respect to or otherwise participating in any indemnification claim in advance of the final disposition of such indemnification claim (including payment on behalf of or advancement to the indemnified party of any expenses incurred by such indemnified party in connection with enforcing any rights with respect to such indemnification or advancement relating to such indemnification claim),

in each case, to the same extent such indemnified parties are entitled to indemnification and/or expense advancement as of August 17, 2017 by Calpine or such subsidiary pursuant to applicable law, Calpine’s or its subsidiaries’ organizational documents or any indemnification agreements in existence on August 17, 2017 and made available to Parent prior to August 17, 2017.

Calpine may obtain, prior to the effective time, a single payment, run-off policy or policies of directors’ and officers’, employee practices and fiduciary liability insurance covering the persons currently covered by Calpine’s existing directors’ and officers’, employee practices and/or fiduciary liability insurance policies for claims arising in respect of actual or alleged errors, misstatements, acts, omissions or any matter claimed against any such person occurring prior to the effective time in amount and scope no less favorable, in the aggregate,

 

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than Calpine’s existing policies, such policy or policies to become effective at the effective time and remain in effect for a six-year period following the effective time. However, the premium for such run-off policy or policies may not exceed 300% of the aggregate annual amounts currently paid by Calpine to maintain its existing directors’ and officers’, employee practices and fiduciary liability insurance policies. If such run-off policy or policies are obtained by Calpine prior to the effective time, Parent is obligated to cause such policy or policies to be maintained in full force and effect, for its full term, and cause all obligations under such policy or policies to be honored by the surviving corporation. In the event Calpine, for any reason, does not obtain such run-off insurance policy or policies as of the effective time, Parent is obligated to obtain, or to cause the surviving corporation to obtain, and remain in effect for a six-year period following the effective time such run-off policy or policies from an insurance carrier with the same or better credit rating as Calpine’s current insurance carrier. However, if such run-off policy or policies cannot be obtained or can be obtained only by paying aggregate premiums in excess of 300% of such amount, Parent or the surviving corporation, as the case may be, will only be required to obtain as much coverage as can be obtained by paying a premium equal to 300% of such amount.

Persons Retained, Employed, Compensated or Used

Calpine has retained Innisfree M&A Incorporated to assist in the solicitation of proxies, for which Innisfree M&A Incorporated will be paid approximately $25,000. Calpine agreed to reimburse Innisfree M&A Incorporated for reasonable expenses incurred by Innisfree M&A Incorporated in connection with its services and will indemnify Innisfree M&A Incorporated for certain losses, costs and expenses.

Except as set forth above, neither Calpine nor any person acting on its behalf has or currently intends to employ, retain or compensate any person to make solicitations or recommendations to Calpine’s stockholders on its behalf with respect to the merger.

Accounting Treatment

The merger will be accounted as a “purchase transaction” for financial accounting purposes.

Material United States Federal Income Tax Consequences

The following is a summary of certain material United States federal income tax consequences to beneficial owners of shares of Calpine common stock upon the exchange of shares of Calpine common stock for cash pursuant to the merger. This summary is general in nature and does not discuss all aspects of United States federal income taxation that may be relevant to a holder of shares of Calpine common stock in light of such holder’s particular circumstances. In addition, this summary does not describe any tax consequences arising under the laws of any local, state or foreign jurisdiction and does not consider any aspects of United States federal tax law other than income taxation. This summary deals only with shares of Calpine common stock held as capital assets within the meaning of Section 1221 of the Internal Revenue Code (generally, property held for investment) and does not address tax considerations applicable to any holder of shares of Calpine common stock that may be subject to special treatment under the United States federal income tax laws, including:

 

    a bank, insurance company, or other financial institution;

 

    a tax-exempt organization;

 

    a retirement plan or other tax-deferred account;

 

    a partnership, an S corporation or other pass-through entity (or an investor in a partnership, S corporation or other pass-through entity);

 

    a mutual fund;

 

    a real estate investment trust;

 

    a foreign pension fund and its affiliates;

 

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    a dealer or broker in stocks and securities, or currencies;

 

    a trader in securities that elects mark-to-market treatment;

 

    a holder of shares of Calpine common stock subject to the alternative minimum tax provisions of the Internal Revenue Code;

 

    a holder of shares of Calpine common stock that received the shares of Calpine common stock through the exercise of an employee stock option, through a tax qualified retirement plan or otherwise as compensation;

 

    a United States Holder (as defined below) that has a functional currency other than the United States dollar;

 

    “controlled foreign corporations,” “passive foreign investment companies” or corporations that accumulate earnings to avoid United States federal income tax;

 

    a person that holds the shares of Calpine common stock as part of a hedge, straddle, constructive sale, conversion or other risk reduction strategy or integrated transaction;

 

    a United States expatriate or a former citizen or long term resident of the United States; or

 

    any holder of shares of Calpine common stock that entered into a support agreement as part of the transactions described in the merger agreement.

This summary is based on the Internal Revenue Code, the Treasury Regulations promulgated under the Internal Revenue Code, and IRS rulings and judicial decisions, all as in effect as of the date hereof, and all of which are subject to change or differing interpretations at any time, with possible retroactive effect. We have not sought, and do not intend to seek, any ruling from the IRS with respect to the statements made and the conclusions reached in the following summary, and no assurance can be given that the IRS will agree with the views expressed herein, or that a court will not sustain any challenge by the IRS in the event of litigation. This discussion does not address the United States federal income tax consequences to holders of shares of Calpine common stock who assert appraisal rights under the DGCL nor does it address any tax consequences arising under the unearned income Medicare contribution tax pursuant to the Health Care and Education Reconciliation Act of 2010.

The discussion set out herein is intended only as a general summary of the material United States federal income tax consequences to a holder of shares of Calpine common stock. We urge you to consult your own tax advisor with respect to the specific tax consequences to you in connection with the merger in light of your own particular circumstances, including federal estate, gift and other non-income tax consequences, and tax consequences under state, local or foreign tax laws or tax treaties.

For purposes of this discussion, the term “United States Holder” means a beneficial owner of shares of Calpine common stock that is, for United States federal income tax purposes:

 

    an individual citizen or resident of the United States;

 

    a corporation (or any other entity or arrangement treated as a corporation for United States federal income tax purposes) organized in or under the laws of the United States or any state thereof or the District of Columbia;

 

    an estate, the income of which is subject to United States federal income taxation regardless of its source; or

 

    a trust if (a) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust or (b) the trust has validly elected to be treated as a “United States person” under applicable Treasury Regulations.

 

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A “non-United States Holder” is any beneficial owner of shares of Calpine common stock that is not a United States Holder or a partnership (or other entity treated as a partnership for United States federal income tax purposes).

If a partnership (including any entity or arrangement treated as a flow-through for United States federal income tax purposes) holds shares of Calpine common stock, the tax treatment of a holder that is a partner in the partnership generally will depend upon the status of the partner and the activities of the partner and the partnership. Such holder should consult its own tax advisor regarding the tax consequences of exchanging the shares of Calpine common stock pursuant to the merger.

United States Holders

Payments with Respect to Shares of Calpine Common Stock

The exchange of shares of Calpine common stock for cash pursuant to the merger will be a taxable transaction for United States federal income tax purposes, and a United States Holder who receives cash for shares of Calpine common stock pursuant to the merger will recognize gain or loss, if any, equal to the difference between the amount of cash received and the holder’s adjusted tax basis in the shares of Calpine common stock exchanged therefor. Gain or loss will be determined separately for each block of shares of Calpine common stock (i.e., shares of Calpine common stock acquired at the same cost in a single transaction). Such gain or loss will be capital gain or loss, and will be long-term capital gain or loss if such United States Holder’s holding period for the shares of Calpine common stock is more than one year at the time of the exchange. Long-term capital gain recognized by an individual holder generally is subject to tax at a lower rate than short-term capital gain or ordinary income. There are limitations on the deductibility of capital losses.

Information Reporting and Backup Withholding

A United States Holder generally will be subject to information reporting and backup withholding at the applicable rate (currently 28%) with respect to the proceeds from the disposition of shares of Calpine common stock pursuant to the merger. A United States Holder can avoid backup withholding if it provides a valid taxpayer identification number and complies with certain certification procedures (generally, by providing a properly completed and executed IRS Form W-9) or otherwise establishes an exemption from backup withholding. Any amounts withheld under the backup withholding rules from a payment to a United States Holder will be allowed as a credit against that holder’s United States federal income tax liability and any overpayment may entitle the holder to a refund if the required information is timely furnished to the IRS. Each United States Holder should complete and sign the IRS Form W-9, which will be included with the letter of transmittal to be returned to the paying agent, to provide the information and certification necessary to avoid backup withholding, unless an exemption applies and is established in a manner satisfactory to the paying agent.

Non-United States Holders

Payments with Respect to Shares of Calpine Common Stock

Payments made to a non-United States Holder with respect to shares of Calpine common stock exchanged for cash pursuant to the merger generally will be exempt from United States federal income tax unless:

 

    the non-United States Holder is an individual who was present in the United States for 183 days or more during the taxable year of the exchange and certain other conditions are met;

 

    the gain is effectively connected with the non-United States Holder’s conduct of a trade or business in the United States, and, if required by an applicable tax treaty, attributable to a permanent establishment maintained by the holder in the United States; or

 

   

Calpine is or has been a United States real property holding corporation, which we refer to as a “USRPHC,” for United States federal income tax purposes at any time during the shorter of the five-

 

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year period ending on the date of exchange of the shares of Calpine common stock or the period that the non-United States Holder held shares of Calpine common stock.

Gain described in the first bullet point above generally will be subject to tax at a flat rate of 30% (or such lower rate as may be specified under an applicable income tax treaty) on any gain from the exchange of the shares of Calpine common stock, net of applicable United States-source losses from sales or exchanges of other capital assets recognized by the holder during the year. Unless a tax treaty provides otherwise, gain described in the second bullet point above will be subject to United States federal income tax on a net income basis in the same manner as if the non-United States Holder were a resident of the United States. Non-United States Holders that are foreign corporations also may be subject to a 30% branch profits tax (or applicable lower rate under an applicable income tax treaty) in respect of effectively connected gains. Non-United States Holders are urged to consult any applicable tax treaties that may provide for different rules.

With respect to the third bullet point above, the determination of whether Calpine is a USRPHC depends on the fair market value of its United States real property interests relative to the fair market value of its other trade or business assets and its foreign real property interests. Calpine has not made a determination as to whether or not it is or has been a USRPHC for U.S. federal income tax purposes during the time period described above. If you are a non-United States Holder and held (actually or constructively) more than five percent of the shares of Calpine common stock at any time during the five-year period immediately preceding the date you exchange your shares and we are a USRPHC, any gain you recognize on the exchange of your shares will be treated as income that is effectively connected to a U.S. trade or business, and subject to United States federal income tax on a net income basis in the same manner as if the non-United States Holder were a resident of the United States. However, if you are a non-United States Holder that owns (actually or constructively) five percent or less of the shares of Calpine common stock at all times during the five-year period ending on the date of disposition, because the shares of Calpine common stock are regularly traded on an established securities market (within the meaning of applicable Treasury Regulations), even if Calpine constitutes a USRPHC, any gain realized on the receipt of cash for shares of Calpine common stock pursuant to the merger generally will not be subject to United States federal income tax.

Information Reporting and Backup Withholding

A non-United States Holder may be subject to information reporting and backup withholding at the applicable rate (currently 28%) with respect to the proceeds from the exchange of shares of Calpine common stock pursuant to the merger. A non-United States Holder can avoid backup withholding by certifying on an appropriate IRS Form W-8 that such non-United States Holder is not a United States person, or by otherwise establishing an exemption in a manner satisfactory to the paying agent. Information provided by a non-United States Holder may be disclosed to such non-United States Holder’s local tax authorities under an applicable tax treaty or information exchange agreement. Non-United States Holders should consult their tax advisors regarding the certification requirements for non-United States persons.

Any amounts withheld under the backup withholding tax rules will be allowed as a refund or a credit against the non-United States Holder’s United States federal income tax liability if the required information is timely furnished to the IRS.

The foregoing summary does not discuss all aspects of United States federal income taxation that may be relevant to particular holders of shares of Calpine common stock. Holders of shares of Calpine common stock should consult their own tax advisors as to the particular tax consequences to them of exchanging their shares of Calpine common stock for cash in the merger under any federal, state, foreign, local or other tax laws or tax treaties.

 

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Regulatory Approvals

To consummate the merger, Calpine and Parent must obtain approvals or consents from, or make filings with, a number of United States federal and state public utility, antitrust and other regulatory authorities. We describe certain material United States federal and state approvals, consents and filings below.

We currently expect to consummate the merger during the first quarter of calendar year 2018. Calpine and Parent have agreed to use reasonable best efforts to obtain as promptly as practicable any necessary consents, and any actions or non-actions by, any governmental entity in connection with the consummation of the merger and the other transactions contemplated by the merger agreement. However, each of Calpine and Parent will have no obligation to take any actions that would:

 

    bind Calpine or its subsidiaries in respect of any matter if the closing of the merger does not occur;

 

    require Parent, its affiliates, Calpine or its subsidiaries to, or to agree to, sell, divest, hold separate or otherwise convey any material portion of the geysers assets, taken as a whole, contemporaneously with or subsequent to the closing;

 

    require Parent, its affiliates, Calpine or its subsidiaries to, or to agree to, terminate, relinquish, modify or waive existing material relationships, ventures, contractual rights, obligations or other material arrangements relating to the geysers assets; or

 

    otherwise adversely affect Parent’s ability to own or operate the geysers assets in any material respect. For further information regarding Calpine’s obligations in connection with any necessary regulatory approvals, see the section entitled “The Merger Agreement—Terms of the Merger Agreement—Efforts to Consummate the Merger” beginning on page 113 of this proxy statement.

Although we believe that we will receive the required consents and approvals to consummate the merger, we cannot give any assurance as to the timing of these consents and approvals or as to Calpine’s and Parent’s ultimate ability to obtain such consents or approvals (or any additional consents or approvals which may otherwise become necessary). We also cannot ensure that we will obtain such consents or approvals on terms and subject to conditions satisfactory to Calpine and Parent. At any time before or after the effective time, the Antitrust Division or the FTC could take action under the antitrust laws, including seeking to enjoin the consummation of the merger, conditionally approve the merger upon the divestiture of assets, subject the consummation of the merger to regulatory conditions or seek other remedies. In addition, state attorneys general and other regulators could take action under the antitrust or other laws as they deem necessary or desirable in the public interest, including, without limitation, seeking to enjoin the consummation of the merger or permitting consummation subject to regulatory conditions. Private parties may also bring legal action under the antitrust laws under certain circumstances. There can be no assurance that a challenge to the merger on antitrust or other regulatory grounds will not be made or, if such a challenge is made, what the result of such challenge will be.

HSR Act

Under the HSR Act, and the related rules and regulations that have been issued by the FTC, certain transactions may not be consummated until certain information and documentary material has been furnished for review by the FTC and the Antitrust Division and certain waiting period requirements have been satisfied or terminated. These requirements apply to the merger.

Under the HSR Act, the merger may not be completed until the expiration of a 30-calendar day waiting period following the filing of premerger notification and report forms with the FTC and the Antitrust Division, unless such waiting period is earlier terminated by the FTC and the Antitrust Division or extended by a request for additional information and documentary materials. On September 8, 2017, Calpine and Parent each filed a premerger notification and report form with the FTC and Antitrust Division, as a result of which the applicable waiting period under the HSR Act was scheduled to expire on October 10, 2017 at 11:59 p.m., Eastern Time,

 

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unless earlier terminated by the FTC and the Antitrust Division or extended by a request for additional information and documentary materials. Early termination of the HSR waiting period was received on September 27, 2017. There can be no assurance that a challenge to the merger on antitrust or other regulatory grounds will not be made or, if such a challenge is made, what the result of such challenge will be.

Federal Power Act

Calpine has subsidiaries deemed to be public utilities subject to the jurisdiction of the FERC under the Federal Power Act, which we refer to as the “FPA.” Section 203 of the FPA requires prior authorization from the FERC for certain transactions resulting in the direct or indirect change of control over a FERC-jurisdictional public utility. Consequently, the FERC’s approval of the merger under Section 203 of the FPA is required.

The FERC must authorize the merger if it finds that the merger is consistent with the public interest. The FERC has stated that, in analyzing a merger or transaction under Section 203 of the FPA, it will evaluate the impact of the merger on:

 

    competition in electric power markets;

 

    the applicants’ wholesale power and transmission rates; and

 

    state and federal regulation of the applicants.

In addition, in accordance with Section 203 of the FPA, the FERC must also find that the merger will not result in the cross-subsidization by utilities of their non-utility affiliates or the improper encumbrance or pledge of utility assets. If such cross-subsidization or encumbrances were to occur as a result of the merger, the FERC then must find that such cross-subsidization or encumbrances are consistent with the public interest.

The FERC will review the above factors to determine whether the merger is consistent with the public interest. If the FERC finds that the merger would adversely affect competition in wholesale electric power markets, rates for electric transmission or the wholesale sale of electric energy, or regulation, or that the merger would result in cross-subsidization or pledges or encumbrances that are not consistent with the public interest, it may, pursuant to the FPA, condition its approval in such a manner as necessary to mitigate such adverse effects, or it may decline to approve the merger.

Calpine and ECP ControlCo, LLC, an affiliate of Energy Capital Partners, filed an application for approval of the merger under Section 203 of the FPA with the FERC on September 15, 2017. The FERC is required to rule on a merger application not later than 180 days from the date on which the completed application is filed. The FERC may, however, for good cause, issue an order extending the time for consideration of the merger application by an additional 180 days. If the FERC does not issue an order within the statutory deadline, then the transaction is deemed to be approved. We expect that the FERC will approve the merger within the initial 180-day review period. However, there is no guarantee that the FERC will not extend the time period for its review or not impose conditions on its approval.

State Regulatory Approvals

The merger is subject to approval by the New York Public Service Commission (or receipt of a declaratory ruling that such approval is not required) and approval by the Public Utility Commission of Texas, which we refer to as “PUCT.” The following subheadings contain a description of the state regulatory commission requirements for the consummation of the merger.

New York Public Service Commission

On September 15, 2017, Calpine and ECP ControlCo, LLC filed a petition with the New York Public Service Commission, which we refer to as the “NYPSC,” for a declaratory ruling that Section 70 of the New

 

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York Public Service Law, which we refer to as the “PSL,” does not apply to the merger, and, in the alternative, for approval of the merger pursuant to Section 70 of the PSL. NYPSC approval is generally required before an electric corporation may transfer ownership interests in an electric plant and/or for certain stock acquisitions of an electric corporation. Calpine’s facilities in New York are either exempt from Section 70 of the PSL or subject to “lightened regulation” such that the NYPSC presumes that approval under Section 70 of the PSL is not required unless there is a potential for harm to the interests of captive utility ratepayers that is sufficient to override the presumption. Calpine and ECP ControlCo, LLC have thus sought a declaratory order from the NYPSC that states that Section 70 of the PSL does not apply to the merger or, in the alternative, approve of the merger pursuant to Section 70 of the PSL. If the NYPSC finds that the merger may result in the potential to exercise vertical or horizontal market power, then the merger may nonetheless be subject to a more detailed “public interest” requirement set forth in the PSL. In conducting a public interest review, the NYPSC may examine, among other things, any affiliations with electric market participants that might afford opportunities for the exercise of market power, and consider any other potential detriments to captive ratepayer interests.

We have asked for the necessary declaratory ruling or approval from the NYPSC by January 15, 2018. However, there is no guarantee that the NYPSC will act by that time or that the NYPSC will not reject the proposed petition or impose unacceptable terms as a condition to its approval in light of the requirements imposed under the merger agreement.

Public Utility Commission of Texas

On September 15, 2017, as required by Section 39.158 of the Texas Public Utility Regulatory Act, which we refer to as “PURA,” ECP ControlCo, LLC filed an application with PUCT for approval of the merger. Parties with standing to intervene had until October 30, 2017 to file a motion to intervene and no motion was filed. On November 7, 2017, the PUCT staff filed a recommendation for approval by the PUCT of the application. Pursuant to PURA Section 39.154, the PUCT is required to approve the application unless the PUCT finds that the transaction results in a power generation company owning and controlling more than 20% of the installed generation capacity located in, or capable of delivering electricity to, the Electric Reliability Council of Texas power region.

We expect to receive approval of the application from the PUCT during the fourth quarter of 2017. However, there is no guarantee that the PUCT will act by that time or that the PUCT will not reject the proposed application, require amendment or re-submittal of the application, or impose unacceptable terms as a condition to its approval in light of the requirements imposed under the merger agreement.

Litigation Relating to the Merger

Purported stockholders of Calpine have filed to date four putative class action complaints challenging the merger in the United States District Court for the Southern District of Texas, Houston Division, which actions are captioned Hickson v. Calpine Corporation, et al., Civil Action No. 17-cv-3252, filed on October 25, 2017, Scarantino v. Calpine Corporation, et al., Civil Action No. 17-cv-03256, filed on October 26, 2017, Langston v. Calpine Corporation, et al., Civil Action No. 17-cv-03316, filed on October 31, 2017, and Stoner v. Calpine Corporation, et. al., Civil Action No. 17-cv-03317, filed on October 31, 2017. Calpine and the individual members of the Calpine Board are named as defendants in each of the actions. The Scarantino complaint also names as defendants Energy Capital Partners, Parent and Merger Sub and the Stoner complaint names as a defendant Energy Capital Partners. The complaints generally allege certain violations of the Exchange Act and Rule 14a-9 under the Exchange Act and seek, among other things, class action certification, injunctive relief prohibiting the stockholder vote to approve the merger, unspecified compensatory damages and attorneys’ fees. Calpine and the Calpine Board believe that the actions lack merit and intend to vigorously defend against these actions.

 

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THE MERGER AGREEMENT

The following is a summary of certain provisions of the merger agreement. The rights and obligations of the parties to the merger agreement are governed by the specific terms and conditions of the merger agreement and not by any summary or other information in this proxy statement. Accordingly, the description of the merger agreement in this section entitled “The Merger Agreement” and elsewhere in this proxy statement is qualified in its entirety by reference to the complete text of the merger agreement, a copy of which is attached as Annex A and is incorporated by reference into this proxy statement. This summary does not purport to be complete and may not contain all of the information about the merger agreement that is important to you. We encourage you to read the merger agreement carefully and in its entirety. This section entitled “The Merger Agreement” is not intended to provide you with any factual information about us. Such information can be found elsewhere in this proxy statement and in the public filings we make with the SEC, as described in the section entitled “Where You Can Find More Information” beginning on page 147 of this proxy statement.

Explanatory Note Regarding the Merger Agreement

The merger agreement has been provided solely to inform you of its terms. The rights and obligations of Calpine, Parent and Merger Sub are governed by the express terms of the merger agreement and not by this summary or any other information contained in this proxy statement. The merger agreement contains customary representations and warranties that Calpine, Parent and Merger Sub made to each other as of specific dates. The assertions embodied in those representations and warranties were made solely for purposes of the merger agreement among Calpine, Parent and Merger Sub and may be subject to important qualifications and limitations not reflected in the text of the merger agreement agreed to by Calpine, Parent and Merger Sub in connection with the negotiated terms. Moreover, some of those representations and warranties may not be accurate or complete as of any specified date, may be subject to a contractual standard of materiality different from those generally applicable to stockholders or may have been used for purposes of allocating risk among Calpine, Parent and Merger Sub rather than establishing matters as facts. Investors and security holders are not third-party beneficiaries under the merger agreement and should not rely on the representations, warranties, covenants and agreements or any descriptions thereof as characterizations of the actual state of facts or condition of Calpine, Parent and Merger Sub or any of their respective affiliates or businesses. For the foregoing reasons, you should not read the representations and warranties given by the parties in the merger agreement or any description of the merger agreement as characterizations of the actual state of facts or conditions of Calpine, Parent, Merger Sub or any of their respective subsidiaries or affiliates.

Terms of the Merger Agreement

The Merger

On the terms and subject to the conditions of the merger agreement, at the effective time, Merger Sub will merge with and into Calpine, the separate corporate existence of Merger Sub will cease and Calpine will continue as the surviving corporation and a subsidiary of Parent. The merger will have the effects set forth in the merger agreement, the certificate of merger and the relevant provisions of the DGCL. Subject to the foregoing, at the effective time, all the properties, rights, privileges, immunities, powers and franchises of Calpine and Merger Sub will vest in the surviving corporation, and all debts, liabilities and duties of Calpine and Merger Sub will become the debts, liabilities and duties of the surviving corporation.

Closing and Effective Time of the Merger

Unless otherwise agreed upon in writing by Calpine and Parent, on the terms and subject to the conditions of the merger agreement, the closing of the merger will take place on the later of (a) the 11th business day after the satisfaction or waiver of all of the conditions precedent set forth in the merger agreement and described in the section entitled “—Merger Closing Conditions” beginning on page 122 of this proxy statement (other than those

 

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conditions that by their nature are to be satisfied at the closing, but subject to the fulfillment or waiver of those conditions) and (b) October 31, 2017. With respect to the preceding clause (a), if the closing does not occur on or prior to the second business day after the date on which all of the aforementioned conditions precedent set forth in the merger agreement have been satisfied or waived (other than those conditions that by their nature are to be satisfied at the closing), then, subject to certain exceptions, no party to the merger agreement will be permitted to use the subsequent failure of any such condition to be satisfied after such second business day as a basis to refuse to consummate the closing or to terminate the merger agreement.

Subject to the terms of the merger agreement, as soon as practicable on the closing date, Parent, Calpine and Merger Sub will file a certificate of merger, together with any required certificates, filings and recordings, with the Secretary of State of the State of Delaware in such form as required by, and executed in accordance with the relevant provisions of the DGCL. The merger will become effective at the time the certificate of merger is filed with the Secretary of State of the State of Delaware or at such later time as Parent and Calpine agree upon and specify in the certificate of merger.

Certificate of Incorporation; By-Laws; Directors and Officers

At the effective time, Calpine’s amended and restated certificate of incorporation will be amended and restated in its entirety to be in the form of the applicable exhibit to the merger agreement and, as so amended and restated, such certificate of incorporation will be the certificate of incorporation of the surviving corporation until, subject to certain exceptions, thereafter amended as provided therein or by applicable law. At the effective time, the by-laws of Merger Sub in effect immediately prior to the effective time will be the by-laws of the surviving corporation until thereafter amended as provided therein or by applicable law. Subject to applicable law, from and after the effective time, the directors of Merger Sub immediately prior to the effective time and the officers of Calpine immediately prior to the effective time will be the directors and officers, respectively, of the surviving corporation, in each case, until their respective successors have been duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with the certificate of incorporation and by-laws of the surviving corporation.

Merger Consideration

At the effective time:

 

    each outstanding share of Calpine common stock (other than certain excluded shares, which are described in the following three bullet points and in the section entitled “—Treatment of Equity Awards—Treatment of Restricted Shares” beginning on page 99 of this proxy statement) will be converted into the right to receive the merger consideration, without interest and less any applicable withholding taxes;

 

    each share of Calpine common stock directly held by Parent or Merger Sub or held by us as treasury stock will be automatically canceled and retired, without payment of any consideration;

 

    each share of Calpine common stock held by Volt Energy or any subsidiary of either Calpine or Parent (other than Merger Sub), will be retained by Volt Energy or such subsidiary, as applicable, and recapitalized into such number of shares of capital stock of the surviving corporation such that the applicable holder owns the same percentage of outstanding capital stock of the surviving corporation immediately following the effective time that it owned in Calpine immediately prior to the effective time; and

 

   

each share of Calpine common stock the holder of which has properly complied with the provisions of Section 262 (see the section entitled “Appraisal Rights” beginning on page 140 of this proxy statement), which we refer to as “dissenting shares,” will not be converted into the right to receive the merger consideration unless and until such stockholder fails to perfect or otherwise withdraws, waives or loses such stockholder’s rights to appraisal under Section 262, at which time each such stockholder’s

 

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right to be paid the fair value of such holder’s dissenting shares in accordance with Section 262 will cease and such dissenting shares will be deemed to have been converted as of the effective time into, and to have become exchangeable solely for, the right (upon the satisfaction of the procedures set forth in the merger agreement) to receive the merger consideration, without interest and less any applicable withholding taxes.

At any time during the period from August 17, 2017 to the effective time, in the event Calpine changes the number of shares of Calpine common stock issued and outstanding prior to the effective time as a result of a stock split, stock dividend, recapitalization, reorganization, subdivision, reclassification, combination, exchange of shares or similar transaction with respect to the outstanding shares of Calpine common stock, then the merger consideration will be appropriately adjusted to reflect such change.

Treatment of Equity Awards

The merger agreement provides that outstanding equity-based awards under Calpine’s equity plans will be treated as set forth below.

Treatment of Stock Options. At the effective time, each company option outstanding immediately prior to the effective time, whether vested or unvested, will be fully vested and canceled and converted into the right to receive an amount in cash, without interest and less any applicable withholding taxes, determined by multiplying the excess, if any, of the merger consideration over the applicable exercise price per share of such company option by the number of shares of Calpine common stock subject to such company option.

Treatment of Restricted Shares. At the effective time, each company restricted share outstanding immediately prior to the effective time will be fully vested and canceled and converted into the right to receive an amount in cash, without interest and less any applicable withholding taxes, equal to the merger consideration.

Treatment of Restricted Stock Units. At the effective time, each company restricted stock unit outstanding immediately prior to the effective time, whether vested or unvested, will be fully vested and canceled and converted into the right to receive an amount in cash, without interest and less any applicable withholding taxes, determined by multiplying the merger consideration by the number of shares of Calpine common stock subject to such company restricted stock unit.

Treatment of Performance Stock Units. At the effective time, each company performance stock unit outstanding immediately prior to the effective time, whether vested or unvested, will be fully vested and canceled and converted into the right to receive an amount in cash, without interest and less any applicable withholding taxes, determined by multiplying the merger consideration by the number of shares of Calpine common stock subject to such company performance stock unit. The number of shares subject to each company performance stock unit will be determined by assuming that performance for the full or cumulative performance period is the higher of the target and actual performance (as determined by Calpine based upon performance up until the closing of the merger).

Payment Procedures

Prior to the effective time, Parent will designate a bank or trust company reasonably acceptable to Calpine as the paying agent and the parties will enter into a written agreement with the paying agent in form and substance reasonably acceptable to Parent and Calpine relating to the services to be performed by the paying agent to act as agent for the holders of Calpine common stock in connection with the merger. At or prior to the effective time, Parent will deposit, or cause to be deposited, with the paying agent, separate and apart from the paying agent’s other funds, for the benefit of holders of certificates representing shares of Calpine common stock, which we refer to as “certificates,” holders of uncertificated shares of Calpine common stock registered to a holder in Calpine’s electronic direct registration system immediately prior to the effective time, which we refer

 

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to as “uncertificated shares,” and holders of uncertificated shares of Calpine common stock held of record by The Depository Trust Company represented by a book-entry account immediately prior to the effective time, which we refer to as “book-entry shares,” cash in an amount equal to the aggregate merger consideration which such holders are entitled to receive in accordance with the merger agreement.

As promptly as practicable after the effective time, but in no event more than three business days following the effective time, the surviving corporation will cause the paying agent to mail to each holder of record of shares of Calpine common stock immediately prior to the effective time (other than holders of certain uncertificated shares and/or excluded shares, as applicable), a letter of transmittal and instructions for use in effecting the surrender of the certificates representing such Calpine common stock or transfer of such holder’s book-entry shares, in each case, in exchange for the merger consideration. Upon physical surrender of certificates (or an affidavit of loss in lieu thereof in accordance with the merger agreement) to the paying agent, together with a duly completed and validly executed letter of transmittal and other documentation reasonably required by the paying agent, or receipt of an “agent’s message” by the paying agent to effect the transfer and cancellation of the book-entry shares, in each case, in accordance with the terms of the letter of transmittal and related instructions, the holder of such certificates or such book-entry shares, will be entitled to receive, and the surviving corporation will direct the paying agent to pay, in exchange therefor, cash in an amount equal to the aggregate merger consideration which such holder has the right to receive in respect of such certificates or book-entry shares.

As promptly as practicable after the effective time, but in no event more than three business days following the effective time, the surviving corporation will cause the paying agent to mail to each holder of uncertificated shares (other than Parent, Merger Sub, Calpine (in treasury stock) and holders of dissenting shares) materials advising such holder of the occurrence of the effective time and the conversion of his, her or its shares of Calpine common stock into the right to receive the merger consideration and instructions for use in effecting the surrender of the uncertificated shares. Upon receipt of documentation regarding the surrender of such uncertificated shares by the paying agent to effect the transfer and cancellation of the uncertificated shares, in each case, in accordance with the mailed materials and instructions, the holder of such uncertificated shares will be entitled to receive, and the surviving corporation will direct the paying agent to pay, in exchange therefor, cash in an amount equal to the aggregate merger consideration which such holder has the right to receive in respect of such uncertificated shares.

In the event that any certificate representing shares of Calpine common stock has been lost, stolen or destroyed, upon the delivery to the paying agent, together with any other documents required pursuant to the merger agreement, of an affidavit in form and substance reasonably satisfactory to Parent or the paying agent of that fact by the person claiming such certificate to be lost, stolen or destroyed and, if reasonably required by Parent or the paying agent, the posting by such person of a bond in a customary and reasonable amount as indemnity against any claim that may be made against it with respect to such certificate, the paying agent or the surviving corporation, as applicable, will issue the aggregate merger consideration to be paid in respect of the shares of Calpine common stock formerly represented by such lost, stolen or destroyed certificate.

Payment of the merger consideration in respect of certificates may be made to a person other than the person registered in the transfer records of Calpine as holding such certificates so surrendered if such certificate formerly representing such shares of Calpine common stock is presented to the paying agent, accompanied by all documents required to evidence and effect such transfer, and the person requesting such payment must pay any transfer or other taxes required to be paid by reason of the payment of the merger consideration in respect thereof or establish to the reasonable satisfaction of the surviving corporation that such taxes have been paid or are not applicable.

If any cash deposited with the paying agent is not claimed within one year following the effective time, such cash may be delivered to the surviving corporation upon written request to the paying agent, and any former holders of Calpine common stock who have not previously complied with the exchange procedures in the merger agreement may thereafter look only to the surviving corporation, and the surviving corporation will remain

 

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liable, for payment of any such holder’s claim for the merger consideration, without interest thereon, upon surrender of such shares of Calpine common stock to the surviving corporation.

No interest will be paid or accrue on any amount payable upon due surrender of the certificates or transfer of any book-entry shares or any uncertificated shares. Parent, Merger Sub, the surviving corporation or its subsidiaries or the paying agent will be entitled to deduct and withhold from the merger consideration or other amounts otherwise payable pursuant to the merger agreement any amounts that it is required to deduct and withhold with respect to the making of such payment under applicable law.

Appraisal Rights

Dissenting shares will not be converted into the right to receive the merger consideration. Instead, holders of dissenting shares will be entitled only to payment of the appraisal value of dissenting shares in accordance with Section 262, less applicable taxes required to be withheld pursuant to the terms of the merger agreement with respect to such payment. At the effective time, such dissenting shares will no longer be outstanding, will automatically be canceled and will cease to exist, and such holders will cease to have any right with respect thereto, except the right to receive the appraisal value of such dissenting shares in accordance with Section 262. In the event that any such stockholder fails to perfect or otherwise waives, withdraws or loses the right to appraisal under Section 262, then the right of such stockholder to be paid the fair value of such stockholder’s dissenting shares in accordance with Section 262 will cease and such shares will be deemed to have been converted as of the effective time into, and to have become exchangeable solely for, the right (upon satisfaction of the exchange procedures in the merger agreement with respect to such shares) to receive the merger consideration, without interest and less any applicable withholding taxes.

Representations and Warranties

The merger agreement contains customary representations and warranties made by Calpine that are subject to specified exceptions and qualifications contained in the merger agreement. Calpine’s representations and warranties are, in certain cases, qualified by Calpine’s “knowledge,” “materiality” and “company material adverse effect.” For purposes of the merger agreement, “company material adverse effect” means any event, occurrence, fact, condition, change, development or effect that, individually or in the aggregate, (a) would or would reasonably be expected to prevent, impair or materially delay consummation by Calpine of the merger or the other transactions contemplated by the merger agreement or otherwise materially adversely affect the ability of Calpine to perform its obligations under the merger agreement or (b) is or would reasonably be expected to be materially adverse to the businesses, assets, properties, liabilities, results of operations or condition (financial or otherwise) of Calpine and its subsidiaries, taken as a whole, but does not, in the case of clause (b) above, include any event, occurrence, fact, condition, change, development or effect resulting from any of the following:

 

    general economic, political or regulatory conditions or changes in such conditions;

 

    financial, credit or stock market fluctuations or conditions;

 

    any changes in or events generally affecting the industries or markets in which Calpine or any of its subsidiaries operate;

 

    any changes in the rates that Calpine or any of its subsidiaries may charge for electricity, energy, capacity, and/or ancillary services or any other product or service subject to regulation by FERC;

 

    any change or development in national, regional, state or local wholesale or retail markets or prices for electric power, capacity, emissions allowances, natural gas, fuel oil, coal, steel, concrete, water, steam or fuel or the transportation of any of the foregoing, including those due to actions by competitors or due to changes in commodities prices or hedging markets therefor;

 

    any change or development in national, regional, state or local electric generating, transmission or distribution systems or natural gas transmission or distribution systems;

 

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    any change in customer usage patterns or customer selection of third-party suppliers for electricity;

 

    any change in GAAP or applicable law (or changes in the interpretation or enforcement of GAAP or applicable law) after the date of the merger agreement;

 

    changes in the market price or trading volume of shares of Calpine common stock, in and of itself (except that any event, occurrence, fact, condition, change, development or effect underlying such changes may not, if not otherwise excluded from the definition of “company material adverse effect,” prevent a determination that there has been a company material adverse effect);

 

    any failure by Calpine to meet any internal, analysts’ or other earnings estimates, budgets, plans forecasts or projections of financial performance or results of operations or changes in credit ratings (except that any event, occurrence, fact, condition, change, development or effect underlying such failure may not, if not otherwise excluded from the definition of “company material adverse effect,” prevent a determination that there has been a company material adverse effect);

 

    natural disasters (other than with respect to the geysers assets or any other assets that, individually or in the aggregate, are material to Calpine and its subsidiaries, taken as a whole, in each case, after taking into account recoveries received under Calpine’s and its subsidiaries’ insurance policies and the ability and timing to repair any such assets);

 

    any engagement in hostilities, whether or not pursuant to the declaration of a national emergency or war, or the occurrence of any military or terrorist attack or any escalation or worsening thereof;

 

    the negotiation, execution, announcement, pendency, performance or consummation of the merger agreement and the transactions contemplated thereby, including the impact of any such action on relationships, contractual or otherwise, with agents, customers, suppliers, vendors, licensors, licensees, lenders, partners, employees or regulators, other than in relation to a breach of Calpine’s representations or warranties regarding regulatory and third party consents and approvals or employee compensation;

 

    any action by Parent or its affiliates or the omission of an action by Parent or its affiliates that was required to be taken by Parent or any of its affiliates, in each case, in breach of the merger agreement;

 

    compliance by Calpine with certain obligations, agreements and conduct of business covenants under the merger agreement or the taking of any specific action at the written direction or with the written consent of Parent or Merger Sub;

 

    labor conditions in the industries or markets in which Calpine or any of its subsidiaries operate;

 

    the identity of the guarantor, Parent or Merger Sub or Parent’s ability to obtain any required consents or approvals in connection with the transactions contemplated by the merger agreement; or

 

    any of the matters specifically set forth or otherwise specifically described in the confidential disclosure letter that Calpine delivered to Parent concurrently with the execution of the merger agreement, which we refer to as the “company disclosure letter,” or any material reports, schedules, forms, statements and other documents filed with, or furnished to, the SEC since December 31, 2015;

except, in the case of the first three bullet points and the fifth, sixth and twelfth bullet points above, to the extent Calpine and its subsidiaries, taken as a whole, are disproportionately affected by such event, occurrence, fact, condition, change, development or effect as compared with other participants in the industries and geographic markets in which Calpine and its subsidiaries operate.

Calpine’s representations and warranties under the merger agreement relate to, among other things:

 

    corporate matters related to Calpine and its subsidiaries, such as organization, existence, good standing and authority to carry on their respective businesses;

 

    absence of encumbrances on Calpine’s ownership of the equity interests of its subsidiaries;

 

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    Calpine’s capitalization, including the number of shares of Calpine common stock and other equity interests issued and outstanding;

 

    absence of preemptive or other similar rights or debt securities that give their holders the right to vote with Calpine’s stockholders;

 

    absence of any proxies, voting trusts or other agreements or understandings by which Calpine or any of its subsidiaries are bound relating to the voting or registration of Calpine’s or any of its subsidiaries’ equity securities;

 

    authority of Calpine to enter into the merger agreement and, subject to the receipt of Calpine stockholder approval, consummate the merger and the other transactions contemplated by the merger agreement, and the enforceability of the merger agreement against Calpine;

 

    absence of violations of or conflicts with our governing documents, governmental orders, applicable law and certain agreements as a result of our entering into and performing the merger agreement;

 

    determination of fairness, the approval and declaration of advisability of and the resolution to recommend that Calpine’s stockholders vote in favor of the adoption of the merger agreement by the Calpine Board;

 

    approval of the common stockholders as the only approval of the holders of any class or series of Calpine capital stock necessary to adopt the merger agreement and approve and consummate the merger under applicable law;

 

    required regulatory filings, consents and approvals in connection with the execution and delivery by Calpine of the merger agreement and the performance by Calpine of its obligations under the merger agreement;

 

    compliance with laws and permits;

 

    SEC filings and company financial statements since December 31, 2015;

 

    compliance with the Sarbanes-Oxley Act of 2002;

 

    Calpine’s disclosure controls and procedures and internal controls over financial reporting and the accuracy of the information contained in this proxy statement;

 

    absence of certain changes and a company material adverse effect since December 31, 2016;

 

    absence of certain undisclosed liabilities;

 

    absence of litigation matters;

 

    tax matters;

 

    properties;

 

    environmental matters;

 

    certain material contracts of Calpine and its subsidiaries and the absence of breach or default thereunder;

 

    employee benefit plans;

 

    certain employment and labor matters;

 

    intellectual property matters;

 

    maintenance of certain insurance policies by Calpine and its subsidiaries;

 

    Calpine’s corporate risk policy with respect to commodities trading and derivative products;

 

    regulation as a public utility holding company, public utility or public service company;

 

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    inapplicability of state takeover laws and regulations to the merger agreement, the merger and the other transactions contemplated by the merger agreement;

 

    receipt by the Calpine Board of an opinion from Lazard as to the fairness, from a financial point of view, of the merger consideration to be received by Calpine’s stockholders; and

 

    absence of undisclosed brokerage, financial advisory, finders’ and similar fees and commissions.

The merger agreement also contains customary representations and warranties made by Parent and Merger Sub that are subject to specified exceptions and qualifications contained in the merger agreement. Parent’s and Merger Sub’s representations and warranties are, in certain cases, qualified by Parent’s “knowledge,” “materiality” and “parent material adverse effect.” For purposes of the merger agreement, “parent material adverse effect” means any event, occurrence, fact, condition, change, development or effect that would prevent, impair or materially delay consummation by Parent or Merger Sub of the merger or the other transactions contemplated thereby or otherwise materially adversely affect the ability of Parent or Merger Sub to perform their respective obligations under the merger agreement.

Parent’s and Merger Sub’s representations and warranties under the merger agreement relate to, among other things:

 

    limited partnership or corporate matters related to Parent and Merger Sub, such as organization, existence, good standing and limited partnership or corporate power;

 

    authority of Parent and Merger Sub to enter into the merger agreement and consummate the merger and the other transactions contemplated by the merger agreement and the enforceability of the merger agreement against Parent and Merger Sub;

 

    required regulatory filings, consents and approvals in connection with the execution and delivery by Parent and Merger Sub of the merger agreement and the performance by Parent and Merger Sub of their respective obligations under the merger agreement;

 

    absence of certain violations, breaches or defaults under certain contracts, organizational documents and laws, in each case, arising out of the execution and delivery by Parent and Merger Sub of the merger agreement and the performance by Parent and Merger Sub of their respective obligations under the merger agreement;

 

    accuracy of information supplied by Parent or Merger Sub for inclusion or incorporation by reference in this proxy statement;

 

    absence of litigation matters;

 

    absence of certain agreements between Parent, Merger Sub or any of their affiliates, on the one hand, and any member of Calpine’s management or the Calpine Board, on the other hand, or any agreement pursuant to which any stockholder of Calpine would be entitled to receive consideration of a different amount or nature than the merger consideration or pursuant to which any stockholder of Calpine agrees to vote to adopt the merger agreement or the merger or agrees to vote against any superior proposal;

 

    the committed financing and the availability and sufficiency of funds in accordance with the debt commitment letters, equity commitment letter and subscription agreements to consummate the merger;

 

    ownership of shares of Calpine common stock;

 

    operation and ownership of Merger Sub;

 

    adoption of the merger agreement by Parent as sole stockholder of Merger Sub as the only vote or consent of the holders of any class or series of capital stock of Merger Sub necessary to approve the merger agreement or the transactions contemplated thereby, including the merger;

 

    absence of undisclosed brokerage, financial, finders’ and similar fees and commissions;

 

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    solvency of the surviving corporation following the consummation of the merger;

 

    delivery by the guarantor of the limited guarantee to Calpine and enforceability thereof; and

 

    no ownership of interests in competitors.

None of the representations and warranties contained in the merger agreement will survive beyond the effective time.

Conduct of Business by Calpine Pending the Merger

The merger agreement contains certain covenants restricting the conduct of business by Calpine between the date of the merger agreement and the effective time. In general, Calpine has agreed that, except (a) as consented to by Parent in writing (which consent may not be unreasonably withheld, delayed or conditioned and which consent will be deemed to have been given if Parent does not object within three business days after receiving a written request for such consent), (b) as listed in the company disclosure letter, (c) as otherwise permitted by or provided for in the merger agreement, (d) for a payment by Calpine or any of its subsidiaries of any amounts (plus 5% of the amount set forth with respect to any particular line item listed therein) set forth in the 2017 and 2018 annual projection materials listed in the company disclosure letter or (e) as required by applicable law or governmental entities, Calpine will, and will cause each of its subsidiaries to, (i) conduct its business in the ordinary course of business and (ii) use commercially reasonable efforts to preserve substantially intact its business organization and preserve in all material respects its relationships with any employees, customers, suppliers, vendors, licensors and licensees with which it has material business relations.

Calpine has also agreed that, except (a) as listed in the company disclosure letter, (b) as otherwise permitted by or provided for in the merger agreement, (c) for a payment by Calpine or any of its subsidiaries of any amounts (plus 5% of the amount set forth with respect to any particular line item listed therein) set forth in the 2017 and 2018 annual projections listed in the company disclosure letter or (d) as required by applicable law or governmental entities, from the date of the merger agreement until the effective time, without the prior written consent of Parent (which consent may not be unreasonably withheld, delayed or conditioned and which consent will be deemed to have been given if Parent does not object within three business days after receiving a written request for such consent), Calpine will not, and will not permit any of its subsidiaries to, take certain actions, including, among others:

 

    adopt or propose any change in its organizational documents;

 

    declare, set aside or pay any dividend or other distribution except for any dividend or distribution by one of Calpine’s subsidiaries to Calpine or any of its wholly-owned subsidiaries;

 

    subject to the fifth bullet point below and certain transactions among Calpine and its subsidiaries as described in the merger agreement, merge or consolidate with any other person or adopt a plan or agreement of complete or partial liquidation or dissolution, merger, consolidation or other reorganization;

 

    sell, lease, license or encumber or otherwise surrender, relinquish or dispose of any assets or property of Calpine or any of its subsidiaries, other than (a) inventory in the ordinary course of business, (b) in an amount not in excess of $25 million individually or $50 million in the aggregate or (c) in connection with certain transactions as described in the merger agreement;

 

    make any acquisition (including by merger) of (a) the equity interests or a material portion of the assets of any other person or (b) any other properties or assets of any other person (other than Calpine or any of its wholly-owned subsidiaries) for consideration in excess of $15 million individually or $35 million in the aggregate, in each case of clause (a) or (b), other than (i) acquisitions of supplies, parts, fuel, materials other inventory, environmental products, and capacity in the ordinary course of business, (ii) capital expenditures made in accordance with the sixteenth bullet point below or (iii) pursuant to certain contracts as identified in the company disclosure letter;

 

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    adopt any shareholder rights plan, except if the Calpine Board determines that failure to take such action would be inconsistent with the directors’ fiduciary duties to Calpine’s stockholders under applicable law;

 

    (a) issue, sell, grant, pledge, transfer, dispose of, or otherwise encumber (or make payments based on the value of), or authorize any of the foregoing with respect to any shares of its capital stock or other securities or amend any term of any of its outstanding securities, other than issuances of Calpine common stock in connection with certain equity awards and the creation of transfer restrictions of general applicability on any securities of Calpine or encumbrances securing indebtedness for borrowed money, (b) split, combine, subdivide or reclassify any shares of Calpine common stock or any other equity interests of Calpine or any of its subsidiaries or (c) purchase, repurchase or redeem or otherwise acquire any shares of Calpine common stock or any other equity interests of Calpine or its subsidiaries or any rights, warrants or options to acquire any such shares or interests other than in connection with the exercise or vesting of certain equity awards;

 

    (a) incur, guarantee or assume, or otherwise become liable for, or modify in any material respect the terms of any indebtedness, (b) issue or sell any debt securities or calls, options, warrants or other rights to acquire any debt securities of Calpine or any of its subsidiaries, (c) assume, guarantee, endorse or otherwise become liable for any indebtedness of any person, (d) make any loans, advances or capital contributions to, or investments in, any person or (e) enter into any arrangement having the economic effect of any of the foregoing other than (so long as any of the following would not reasonably be expected to lead to a rating event): (i) immaterial amounts in the ordinary course of business, (ii) indebtedness for borrowed money in an amount not in excess of $100 million in the aggregate, (iii) any intercompany indebtedness, loan, advance, capital contribution or investment among Calpine and/or any wholly-owned subsidiary of Calpine, (iv) guaranties and credit support, in the ordinary course of business, by Calpine of obligations of any of its wholly-owned subsidiaries or by any Calpine subsidiary of obligations of Calpine or a wholly-owned subsidiary of Calpine, (v) pursuant to Calpine’s existing debt instruments and existing revolving credit agreement, (vi) letters of credit issued in connection with the sale or purchase of derivative products, purchase, exchange, sale or transportation or storage of gas, oil or other fuel or thermal or electric energy, capacity, ancillary services, environmental products, or in support of Calpine’s retail operations or any other agreement allowed under the merger agreement or otherwise in the ordinary course of business and (vii) letters of credit issued to support positions in place as of the date of the merger agreement;

 

    repay, redeem, repurchase, prepay, defease or cancel any obligations for borrowed money or otherwise evidenced by bonds, debentures, notes or other similar instruments, other than, so long as any of the following would not reasonably be expected to lead to a rating event, (a) as required pursuant to the terms thereof, (b) existing indebtedness at or within three months of maturity or (c) in an amount not in excess of $100 million in the aggregate;

 

    enter into, amend or terminate any collective bargaining contract or other contract with a labor union, works council or similar organization;

 

   

subject to certain exceptions, (a) materially increase the compensation or benefits of directors or executive officers of Calpine, (b) provide increases in salaries, wages, other compensation or benefits, other than in the ordinary course of business, of (i) employees who are not executive officers or directors of Calpine or (ii) independent contractors of Calpine or any of its subsidiaries, (c) enter into any change-in-control, retention, employment, severance, termination or other similar contract with, or grant any change-in-control, retention, severance, termination or other similar compensation or benefits to, any executive officer, director, employee or independent contractor, (d) establish, adopt, terminate or materially amend any Calpine benefit plan, (e) accelerate the time of payment or vesting of any compensation or benefits for any current or former employee, director or independent contractor of Calpine or any of its subsidiaries, (f) take any action to fund or in any other way secure the payment of compensation or benefits under any Calpine benefit plan or (g) pay or provide any compensation or

 

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benefit not required by the terms of any Calpine benefit plan in effect on the date of the merger agreement to any current or former employee, director or independent contractor of Calpine or any of its subsidiaries;

 

    change any method of accounting or accounting principles or practices followed by Calpine or any of its subsidiaries, except for any such change required by a change in GAAP or as recommended by Calpine’s audit committee or independent auditors;

 

    pay, discharge, settle, compromise, waive, release or satisfy any material litigation, arbitration, proceeding, claim, liability or obligation that would (a) result in any liability in excess of $50 million in the aggregate or such greater amount reserved therefor or reflected in any material reports, schedules, forms, statements and other documents filed with, or furnished to, the SEC since December 31, 2015 or (b) impose any non-monetary obligations on Calpine or any of its subsidiaries that would have a material effect on the continuing operations of Calpine and its subsidiaries, taken as a whole;

 

    fail to maintain, terminate or cancel any insurance coverage maintained by Calpine or any of its subsidiaries with respect to any material assets without replacing such coverage with a comparable amount of insurance coverage to the extent available on commercially reasonable terms;

 

    other than in the ordinary course of business, enter into certain material contracts, amend, renew, extend, modify, waive or release (or otherwise forego any material right or claim under) on terms materially adverse to Calpine, or cancel or terminate certain material contracts;

 

    make or authorize any new capital expenditures other than (a) capital expenditures related to operational emergencies, equipment failures or outages or required on an emergency basis or for the safety of persons or the environment; provided that (i) Calpine will provide notice to Parent of such action taken as soon as reasonably practicable thereafter (but no later than three business days after such action is taken) and (ii) such capital expenditures must be made in accordance with good industry practice, (b) capital expenditures required by applicable law or governmental entities, or (c) any other capital expenditures not in excess of $25 million in the aggregate;

 

    make or change any material tax election, file any material amended tax return, settle or compromise any material tax audit or other proceeding, compromise or surrender any material tax refund, credit or other similar benefit, change any material method of tax accounting or make any material voluntary tax disclosure or tax amnesty or similar filing; or

 

    agree or commit to do any of the foregoing actions.

Notwithstanding anything in the merger agreement to the contrary, Calpine and its subsidiaries may take commercially reasonable actions if reasonably necessary with respect to emergency situations. In such instances, Calpine and its subsidiaries will use good industry practice in mitigation of any such emergency situation and provide Parent with notice of such action taken as soon as reasonably practicable thereafter (and in no event later than three business days after such action is taken).

Conduct of Business by Parent and Merger Sub Pending the Merger

From the date of the merger agreement until the effective time, except as permitted by or provided for in the merger agreement or with the prior written consent of Calpine, Parent and Merger Sub have agreed not to effect or agree to effect any business combination transaction that would reasonably be expected to prevent, impair or materially delay the consummation of the merger or the other transactions contemplated by the merger agreement.

Calpine Stockholder Meeting

Calpine is obligated to, in accordance with its organizational documents and applicable law, promptly and duly establish a record date and call, give notice of and convene, a special meeting of its stockholders for the

 

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purpose of seeking their adoption of the merger agreement, as promptly as reasonably practicable following the date upon which this proxy statement is cleared by the SEC. Unless the Calpine Board has effected an adverse recommendation change, Calpine is obligated to recommend to Calpine’s stockholders that the stockholders vote in favor of adoption of the merger agreement and give approval of adoption of the merger agreement and include in this proxy statement such recommendation. Unless the Calpine Board has effected an adverse recommendation change, Calpine is obligated to use commercially reasonable efforts to solicit the adoption of the merger agreement by Calpine’s stockholders. Calpine may postpone, recess or adjourn the special meeting of Calpine’s stockholders (a) with the consent of Parent, (b) if Calpine is unable to obtain a quorum of its stockholders at the special meeting, (c) after consultation with Parent and, without the consent of Parent, on no more than two occasions for up to ten business days each, to allow additional solicitation of votes, if necessary, in order to obtain approval of adoption of the merger agreement by Calpine’s stockholders or (d) to allow additional time for the filing and distribution of any amended or supplemental disclosure which the Calpine Board has determined in good faith (after consultation with outside counsel and Parent) is necessary or advisable under applicable law and for such amended or supplemental disclosure to be reviewed by Calpine’s stockholders prior to the special meeting of Calpine’s stockholders. Irrespective of the foregoing, Calpine is required to postpone, recess or adjourn the meeting of Calpine’s stockholders if so requested by Parent, for the absence of a quorum or for up to ten business days, to allow additional solicitation of votes if necessary in order to obtain the adoption of the merger agreement by Calpine’s stockholders.

Go-Shop Period; Solicitation of Alternative Transaction Proposals

During the go-shop period, Calpine, its subsidiaries and their respective representatives shall have the right to, directly or indirectly:

 

    solicit, initiate, facilitate or encourage any alternative transaction proposal, including by way of furnishing information with respect to Calpine and its subsidiaries to the person making such alternative transaction proposal (and its representatives) pursuant to an acceptable confidentiality agreement, so long as a copy of all such information not previously provided to Parent (or its representatives) is provided to Parent as promptly as reasonably practicable (and, in any event, within 24 hours) after such information has been furnished to such person (or its representatives); and

 

    participate in discussions or negotiations with respect to any alternative transaction proposal or otherwise cooperate in connection with or assist or participate in or facilitate any such discussions or negotiations or any effort or attempt to make any alternative transaction proposal.

During the go-shop period, however, Calpine will not, will cause each of its subsidiaries not to, and will direct and use commercially reasonable efforts to cause its and their respective representatives not to, directly or indirectly, take any of the foregoing actions with respect to any person who is, to Calpine’s knowledge, an identified sponsor investor.

On the no-shop period start date, Calpine has agreed to notify Parent of the number and identity of the exempted persons from whom Calpine or any of its representatives received an alternative transaction proposal or any person or “group” (within the meaning of Section 13(d)(3) of the Exchange Act) who inquired about or requested information in connection with its consideration of any alternative transaction proposal during the go-shop period and the material terms and conditions of any such alternative transaction proposal received (including any changes thereto).

From and after the no-shop period start date, Calpine has agreed to, and to cause each of its subsidiaries to, and to direct and use commercially reasonable efforts to cause its and their representatives to, among other things:

 

    immediately cease any solicitation, facilitation, encouragement, discussion, negotiation or cooperation with respect to any alternative transaction proposal; and

 

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    immediately instruct each person (other than Parent, Parent’s affiliates, the identified sponsor investors and its and their respective representatives and other than as expressly directed in writing by Parent) that has previously executed a confidentiality agreement in connection with such person’s consideration of an alternative transaction proposal to promptly return to Calpine or destroy any non-public information previously furnished to such person or to such person’s representatives by or on behalf of Calpine or any of its subsidiaries and immediately terminate the access of each such person and its representatives to any electronic data room maintained by or on behalf of Calpine or any of its subsidiaries.

From the no-shop period start date until the effective time or, if earlier, the termination of the merger agreement in accordance with its terms, except as otherwise provided in the merger agreement, Calpine has agreed not to, and to cause each of its subsidiaries not to, and to direct and use commercially reasonable efforts to cause its and their representatives not to, directly or indirectly, among other things: