<PAGE>

                        FILED PURSUANT TO RULE 424(b)(3)
                               FILE NO. 333-85654
PROSPECTUS

[CALPINE CORP. LOGO]
                                 $1,200,000,000

                              CALPINE CORPORATION

               4% CONVERTIBLE SENIOR NOTES DUE DECEMBER 26, 2006
    AND SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THE SENIOR NOTES

                           -------------------------

     This prospectus covers resales by selling security holders of our 4%
convertible senior notes due December 26, 2006 and shares of our common stock
into which the notes are convertible.

     Our 4% convertible senior notes have the following provisions:

<Table>
<S>                    <C>
Interest Payments:     June 26 and December 26 of each year

Conversion Rate:       55.3403 shares per $1,000 principal amount,
                       equal to a conversion price of $18.07 per
                       share

Repurchase Options:    - by noteholders upon a change of control
                       - by noteholders on December 26, 2004
</Table>

     The notes are senior, unsecured obligations that rank equally with our
existing and future unsecured and unsubordinated indebtedness. See "Description
of Notes -- Ranking."

     Prior to this offering, the notes have been eligible for trading on the
PORTAL Market of the Nasdaq Stock Market. Notes sold by means of this prospectus
are not expected to remain eligible for trading on the PORTAL Market. We do not
intend to list the notes for trading on any national securities exchange or on
the Nasdaq Stock Market.

     Our common stock trades on The New York Stock Exchange under the symbol
"CPN." The last reported sales price on June 21, 2002 was $7.64 per share.

     SEE "RISK FACTORS" ON PAGE 6 OF THIS PROSPECTUS TO READ ABOUT FACTORS YOU
SHOULD CONSIDER BEFORE PURCHASING THE NOTES OR OUR COMMON STOCK.

     NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

                 The date of this prospectus is June 21, 2002.
<PAGE>

                               TABLE OF CONTENTS

<Table>
<Caption>
                                        PAGE
                                        ----
<S>                                     <C>
About This Prospectus.................    1
Summary...............................    2
Risk Factors..........................    6
Consolidated Ratio of Earnings to
  Fixed Charges.......................    6
Where You Can Find More Information
  About Us and This Offering..........    8
Forward-Looking Statements............    9
Use of Proceeds.......................    9
</Table>

<Table>
<Caption>
                                        PAGE
                                        ----
<S>                                     <C>
Selling Holders.......................   10
Plan of Distribution..................   13
Description of Notes..................   15
Description of Capital Stock..........   32
Material United States Federal Income
  Tax Consequences....................   35
Legal Matters.........................   42
Independent Auditors..................   42
</Table>

                                        i
<PAGE>

                             ABOUT THIS PROSPECTUS

     This prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission, or SEC, using a "shelf" registration or
continuous offering process. Under this shelf registration process, selling
holders may from time to time sell the securities described in this prospectus
in one or more offerings.

     This prospectus provides you with a general description of the securities
that the selling holders may offer. A selling holder may be required to provide
you with a prospectus supplement containing specific information about the
selling holder and the terms of the securities being offered. That prospectus
supplement may include additional risk factors or other special considerations
applicable to those securities. A prospectus supplement may also add, update or
change information in this prospectus. If there is any inconsistency between the
information in this prospectus and any prospectus supplement, you should rely on
the information in that prospectus supplement. You should read both this
prospectus and any prospectus supplement together with the additional
information described under the heading "Where You Can Find More Information
About Us and this Offering."

     Unless we have indicated otherwise, references hereafter in this prospectus
to "Calpine," "we," "us," and "our" or similar terms are to Calpine Corporation
and its consolidated subsidiaries, excluding Calpine Capital Trust III, Calpine
Capital Trust II and Calpine Capital Trust. Unless we have indicated otherwise,
references hereafter in this prospectus to "$" or "dollar" are to the lawful
currency of the United States.

     On April 19, 2001, we acquired Encal Energy Ltd. in a merger transaction
that was accounted for as a pooling-of-interests under United States generally
accepted accounting principles, or U.S. GAAP. All financial information
contained in this prospectus has been restated for all periods presented as if
Encal and Calpine had always been combined.

                                        1
<PAGE>

                                    SUMMARY

     This summary highlights information contained elsewhere or incorporated by
reference in this prospectus. This summary is not complete and does not contain
all of the information that you should consider before investing in our
securities. You should carefully read the entire prospectus, including the risk
factors, the financial statements and the documents incorporated by reference.
All information in this prospectus reflects the 2 for 1 stock split that became
effective on October 7, 1999, the 2 for 1 stock split that became effective on
June 8, 2000 and the 2 for 1 stock split that became effective on November 14,
2000.

                                  OUR BUSINESS

     We are a leading independent power company engaged in the development,
acquisition, ownership and operation of power generation facilities and the sale
of electricity predominantly in the United States, but also in Canada and the
United Kingdom. We are also the world's largest producer of renewable geothermal
energy, and we own 1.3 trillion cubic feet equivalent of proved natural gas
reserves in Canada and the United States. We have experienced significant growth
in all aspects of our business over the last five years. Currently, we own
interests in 67 power plants having a net capacity of 14,829 megawatts. We also
have 20 gas-fired projects under construction having a net capacity of 11,204
megawatts and have 34 projects in advanced development with a net capacity of
15,100 megawatts. Construction of these advanced development projects will
proceed if and when market fundamentals are sound, our return on investment
criteria are expected to be met, and financing is available on attractive terms.

     The completion of the projects currently under construction would give us
interests in 87 power plants located in 21 states, three Canadian provinces and
the United Kingdom, having a net capacity of 26,033 megawatts. Of this total
generating capacity, 97% will be attributable to gas-fired facilities and 3%
will be attributable to geothermal facilities. As a result of our expansion
program, our net income, fully diluted earnings per share and assets have grown
significantly from 1997 to 2001, as shown in the table below, although we do not
anticipate our growth to continue at these rates in view of our revised
construction and advanced development activities.

<Table>
<Caption>
                                                                                 COMPOUND ANNUAL
                                                    1997            2001           GROWTH RATE
                                                ------------    -------------    ---------------
                                                (DOLLARS IN MILLIONS, EXCEPT
                                                     PER SHARE AMOUNTS)
<S>                                             <C>             <C>              <C>
Net income....................................    $   33.3        $   648.1            110%
Fully diluted earnings per share (1)..........        0.18             1.85             79%
Fully diluted earnings per share from
  recurring operations (2)....................        0.18             1.92             81%
Total assets..................................     1,643.2         21,309.3             90%
</Table>

---------------
     (1) Before extraordinary items and cumulative effect of a change in
         accounting principle.

     (2) Before deduction of merger expense in connection with the Encal Energy
         Ltd. pooling-of-interests transaction, and before extraordinary items
         and cumulative effect of a change in accounting principle.

                                   OUR MARKET

     The electric power industry represents one of the largest industries in the
United States and impacts nearly every aspect of our economy, with an estimated
end-user market of over $240 billion of electricity sales in 2001. The power
generation industry historically has been largely characterized by electric
utility monopolies producing electricity from old, inefficient, high-cost
generating facilities selling to a captive customer base. Industry trends and
regulatory initiatives have transformed the existing market into a more

                                        2
<PAGE>

competitive market where end-users in certain power markets may purchase
electricity from a variety of suppliers, including independent power producers,
power marketers, regulated public utilities and others.

     There is a significant need for additional power generating capacity
throughout the United States, both to satisfy increasing demand, as well as to
replace old and inefficient generating facilities. We estimate that as much as
20%, or approximately 160,000 megawatts, of U.S. summer generating capacity is
vulnerable to environmental or economic replacement by new state-of-the-art
facilities. Due to environmental and economic considerations, we believe this
new capacity will be provided predominantly by gas-fired facilities. We believe
that these market trends will create substantial opportunities for efficient,
low-cost power producers that can produce and sell energy to customers at
competitive rates.

                              RECENT DEVELOPMENTS

     In addition to the recent developments described below, please see the
recent developments described in our Annual Report on Form 10-K for the year
ended December 31, 2001, our Quarterly Report on Form 10-Q for the quarter ended
March 31, 2002 and our Current reports on Form 8-K or Form 8-K/A filed on
January 16, 2002, January 17, 2002, February 8, 2002, March 13, 2002, March 13,
2002, March 26, 2002, April 8, 2002, April 25, 2002, April 26, 2002, May 3,
2002, June 4, 2002 and June 6, 2002, each of which is incorporated by reference
in this prospectus.

     Recent Rating Agency Actions.  In December 2001, Moody's Investors Service
downgraded our long-term debt from Baa3, its lowest investment grade rating, to
Ba1, its highest non-investment grade rating, and Fitch, Inc. downgraded our
long-term debt credit rating from BBB-, its lowest investment grade rating, to
BB+, its highest non-investment grade rating. In March 2002, each of Moody's and
Fitch further downgraded our long-term debt credit rating, including our senior
unsecured debt credit rating, to B1 (Moody's) and BB (Fitch), and Standard &
Poor's downgraded our corporate credit rating from BB+ to BB and our senior
unsecured debt credit rating from BB+ to B+. Moody's continues to report our
ratings outlook as negative. We cannot assure you that Moody's, Fitch and/or
Standard & Poor's will not further downgrade our credit ratings in the future.
If any of our credit ratings are further downgraded, we could be required to,
among other things, pay additional interest under our credit agreements, or
provide additional guarantees, collateral, letters of credit or cash for credit
support obligations and it could increase our cost of capital, make our efforts
to raise capital more difficult and have an adverse impact on us and our
subsidiaries.

                        OUR PRINCIPAL EXECUTIVE OFFICES

     We are a corporation organized and existing under the laws of the State of
Delaware. Our principal executive offices are located at 50 West San Fernando
Street, San Jose, California 95113. Our telephone number is (408) 995-5115.

                                   THE NOTES

INTEREST......................   We will pay interest on the principal amount of
                                 the notes on June 26 and December 26 of each
                                 year, commencing on June 26, 2002.

CONVERSION....................   You may convert the notes into shares of our
                                 common stock at any time before the close of
                                 business on December 24, 2006 unless we have
                                 repurchased the notes. The conversion rate is
                                 55.3403 shares of common stock per $1,000
                                 principal amount of notes. This is equivalent
                                 to a conversion price of $18.07 per share. We
                                 will adjust the conversion rate each time we
                                 take various corporate actions specified in the
                                 indenture governing the notes. See "Description
                                 of Notes -- Conversion Rights."

                                        3
<PAGE>

RANKING.......................   The notes are senior, unsecured obligations
                                 that rank equally with all of our existing and
                                 future unsecured and unsubordinated
                                 indebtedness. Holders of the notes will have a
                                 junior position to the claims of creditors of
                                 our subsidiaries on the assets of our
                                 subsidiaries and will be effectively
                                 subordinated to our secured indebtedness to the
                                 extent of the value of the assets pledged in
                                 support of our secured indebtedness. See
                                 "Description of Notes -- Ranking."

GLOBAL NOTES; BOOK-ENTRY
SYSTEM........................   We issued the notes in registered form without
                                 interest coupons and in minimum denominations
                                 of $1,000. We have deposited global notes with,
                                 or on behalf of, The Depository Trust Company,
                                 which we refer to as DTC. DTC and its
                                 participants maintain records that show
                                 beneficial ownership in the notes, and those
                                 interests can be transferred only through those
                                 records. See "Description of
                                 Notes -- Book-Entry System and -- Form,
                                 Exchange Registration and Transfer."

REPURCHASE OF NOTES AT YOUR
OPTION ON DECEMBER 26, 2004...   You have the right to require us to repurchase
                                 all or a portion of your notes on December 26,
                                 2004 at 100% of their principal amount plus any
                                 accrued and unpaid interest to the repurchase
                                 date. We may choose to pay the repurchase price
                                 in cash or shares of our common stock, or a
                                 combination of cash and shares of our common
                                 stock. If we pay the repurchase price with
                                 shares of our common stock, the common stock
                                 will be valued at 100% of the average closing
                                 sales prices of our common stock for the five
                                 trading day period ending on the third business
                                 day prior to the repurchase date. See
                                 "Description of Notes -- Repurchase Right."

REPURCHASE OF NOTES AT YOUR
OPTION UPON A CHANGE IN
CONTROL.......................   If we undergo a change in control, you will
                                 have the right to require us to repurchase all
                                 or a portion of your notes at 100% of their
                                 principal amount plus any accrued and unpaid
                                 interest to the repurchase date. We may pay the
                                 purchase price either in cash or, if we satisfy
                                 the conditions set forth in the indenture, in
                                 shares of common stock. If we pay the
                                 repurchase price in common stock, the common
                                 stock will be valued at 95% of the average
                                 closing sales prices of our common stock for
                                 the five trading day period ending on the third
                                 business day prior to the repurchase date. See
                                 "Description of Notes -- Change in Control."

EVENTS OF DEFAULT.............   The following are events of default under the
                                 indenture for the notes:

                                      - we fail to pay any interest on any note
                                        when due and that non-payment continues
                                        for 30 days;

                                      - we fail to pay principal and accrued
                                        interest on any note when due;

                                      - we materially fail to perform any other
                                        covenant or agreement in the notes or
                                        the indenture for a period of 30 days
                                        after written notice to us;

                                        4
<PAGE>

                                      - we default on any of our other
                                        instruments of indebtedness with an
                                        outstanding principal amount of
                                        $50,000,000 or more, individually or in
                                        the aggregate, and our default causes
                                        the holders of the indebtedness to
                                        declare the indebtedness due and payable
                                        prior to its stated maturity, unless the
                                        holders of the indebtedness rescind
                                        their declaration within 30 days;

                                      - we fail to pay when due in excess of
                                        $50,000,000 of principal under any of
                                        our other instruments of indebtedness
                                        and that non-payment continues
                                        unremedied and unwaived for 30 days; and

                                      - events of bankruptcy, insolvency or
                                        reorganization specified in the
                                        indenture.

                                 See "Description of Notes -- Events of
                                 Default."

GOVERNING LAW.................   The laws of the State of New York govern the
                                 indenture and the notes.

                                        5
<PAGE>

                                  RISK FACTORS

     Investing in the notes involves risk. Before making an investment decision,
you should carefully consider the following risks as well as other information
contained or incorporated by reference in this prospectus. The risks and
uncertainties described are not the only ones facing us. Additional risks and
uncertainties that we do not yet know of or that we currently think are
immaterial may also impair our business. You could lose all or part of your
investment if any of the risks and uncertainties described actually occur.

RISKS RELATING TO CALPINE

     Please see the risk factors described in our Annual Report on Form 10-K for
the year ended December 31, 2001 for a description of the risks relating to
Calpine.

RISKS RELATING TO THE NOTES

     BECAUSE THE NOTES ARE NOT LISTED ON AN EXCHANGE OR OTHER TRADING MARKET, IT
IS UNLIKELY THAT A MARKET WILL DEVELOP FOR THEM AND YOU SHOULD BE PREPARED TO
HOLD THEM TO MATURITY.

     There is no public market for the notes, which may significantly limit:

     - the liquidity of any market that may develop;

     - your ability to sell your notes; and

     - the price at which you will be able to sell your notes.

     If a market for the notes were to develop, the notes could trade at prices
that may be higher or lower than the principal amount or purchase price,
depending on many factors, including prevailing interest rates, the market for
similar notes and our financial performance. We do not intend to list the notes
for trading on any national securities exchange or on the Nasdaq National
Market, so you should be prepared to hold the notes to maturity unless you
convert them.

     Deutsche Bank Securities advised us at the time of the initial offering and
sale of the notes that it planned to make a market in the notes. Deutsche Bank
is not obligated, however, to make a market for the notes, and may discontinue
any market-making activity at any time at its sole discretion. In addition,
market-making activity will be subject to the limits imposed by the Securities
Act of 1933 and the Securities Exchange Act of 1934. Accordingly, no assurance
can be given as to the development or liquidity of any market for the notes.

                CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES

     The following table sets forth our consolidated ratio of earnings to fixed
charges for each of the last five years.

<Table>
<Caption>
                                        THREE MONTHS ENDED
       YEAR ENDED DECEMBER 31,              MARCH 31,
-------------------------------------   ------------------
1997    1998    1999    2000    2001           2002
-----   -----   -----   -----   -----          ----
<S>     <C>     <C>     <C>     <C>     <C>
1.68x   1.52x   1.83x   2.26x   1.64x           --
</Table>

     For purposes of computing our consolidated ratio of earnings to fixed
charges, earnings consist of pre-tax income before adjustment for minority
interests in our consolidated subsidiaries or income or loss from equity
investees, plus fixed charges, amortization of capitalized interest, and
distributed income of equity investees, reduced by interest capitalized and the
minority interest in pre-tax income of subsidiaries that have not incurred fixed
charges. Fixed charges consist of interest expensed and capitalized (including
amortized premiums, discounts and capitalized expenses related to indebtedness),
an estimate of the interest within rental expense and the distributions on our
company-obligated mandatorily redeemable convertible preferred securities of
subsidiary trusts.

                                        6
<PAGE>

     For the three months ended March 31, 2002, the Company had an earnings to
fixed charges coverage deficiency of approximately $280.6 million, primarily as
a result of (1) a pre-tax charge to earnings of $168.5 million for turbine and
other equipment order cancellation costs, (2) increased interest costs due to
recent debt financings, (3) a significant decrease in electricity prices, gas
prices and spark spreads, primarily as a result of unusually mild weather and
weak market fundamentals as compared to the three months ended March 31, 2001
and (4) expected seasonal softness in energy prices.

                                        7
<PAGE>

         WHERE YOU CAN FIND MORE INFORMATION ABOUT US AND THIS OFFERING

     We have filed with the SEC a registration statement on Form S-3 under the
Securities Act, to register the notes and common stock offered by this
prospectus. This prospectus does not contain all of the information included in
the registration statement and the exhibits and the schedules to the
registration statement. We strongly encourage you to read carefully the
registration statement and the exhibits and the schedules to the registration
statement.

     Any statement made in this prospectus concerning the contents of any
contract, agreement or other document is only a summary of the actual contract,
agreement or other document. If we have filed any contract, agreement or other
document as an exhibit to the registration statement, you should read the
exhibit for a more complete understanding of the document or matter involved.
Each statement regarding a contract, agreement or other document is qualified in
its entirety by reference to the actual document.

     We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may obtain any document we file with the SEC at
the SEC's public reference rooms in Washington, D.C., Chicago, Illinois and New
York, New York. You may obtain information on the operation of the SEC's public
reference facilities by calling the SEC at 1-800-SEC-0330. You can request
copies of these documents, upon payment of a duplicating fee, by writing to the
SEC at its principal office at 450 Fifth Street, N.W., Washington, D.C.
20549-1004. Our SEC filings are also accessible through the Internet at the
SEC's website at http://www.sec.gov.

     The SEC permits us to "incorporate by reference" into this prospectus the
information contained in documents that we file with it, which means that we can
disclose important information to you by referring you to those documents. The
information incorporated by reference is considered to be a part of this
prospectus. Information in this prospectus supersedes information incorporated
by reference that we filed with the SEC prior to the date of this prospectus,
while information that we file later with the SEC will automatically update and
supersede this information. We incorporate by reference the documents listed
below and any future filings we will make with the SEC under Sections 13(a),
13(c), 14, or 15(d) of the Securities Exchange Act until the offering is
completed:

     - our Annual Report on Form 10-K (File No. 001-12079) for the year ended
       December 31, 2001;

     - our Quarterly Report on Form 10-Q for the quarter ended March 31, 2002;

     - our Current Reports on Form 8-K or Form 8-K/A filed with the SEC on
       January 16, 2002, January 17, 2002, February 8, 2002, March 13, 2002,
       March 13, 2002, March 26, 2002, April 8, 2002, April 25, 2002, April 26,
       2002, May 3, 2002, June 4, 2002 and June 6, 2002;

     - the description of our common stock contained in our Registration
       Statement on Form 8-A (File No. 001-12079), filed with the SEC on August
       20, 1996; and

     - the description of rights relating to our common stock contained in our
       Registration Statement on Form 8-A (File No. 001-12079), filed with the
       SEC on June 17, 1997, and the amendments to that Registration Statement
       filed on June 18, 1997, June 24, 1997 and September 28, 2001.

     You may request a copy of these filings, at no cost to you, by writing or
telephoning us at: Calpine Corporation, 50 West San Fernando Street, San Jose,
California 95113, attention: Lisa M. Bodensteiner, Assistant Secretary,
telephone: (408) 995-5115. If you request a copy of any or all of the documents
incorporated by reference, we will send to you the copies you request. However,
we will not send exhibits to the documents, unless the exhibits are specifically
incorporated by reference in the documents.

     YOU SHOULD RELY ONLY ON THE INFORMATION PROVIDED IN THIS PROSPECTUS OR
INCORPORATED BY REFERENCE INTO THIS PROSPECTUS AND ANY PROSPECTUS SUPPLEMENT. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT
MAKING AN OFFER OR SOLICITING A PURCHASE OF THESE SECURITIES IN ANY JURISDICTION
IN WHICH THE OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON
MAKING THE OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM
IT IS UNLAWFUL TO MAKE THE OFFER OR SOLICITATION. YOU SHOULD NOT ASSUME THAT THE
INFORMATION IN THIS PROSPECTUS OR THE PROSPECTUS SUPPLEMENT IS ACCURATE AS OF
ANY DATE OTHER THAN THE DATE ON THE FRONT OF THE DOCUMENT.

                                        8
<PAGE>

                           FORWARD-LOOKING STATEMENTS

     Some of the statements contained in this prospectus and incorporated by
reference into this prospectus are forward-looking statements within the meaning
of Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act and are subject to the safe harbor created by the Private Securities
Litigation Reform Act of 1995. These statements include declarations regarding
our or our management's intents, beliefs or current expectations. In some cases,
you can identify forward-looking statements by terminology such as "may,"
"will," "should," "expects," "plans," "anticipates," "believes," "estimates,"
"predicts," "potential," or "continue" or the negative of these terms or other
comparable terminology. Any forward-looking statements are not guarantees of
future performance and actual results could differ materially from those
indicated by the forward-looking statements. Forward-looking statements involve
known and unknown risks, uncertainties, and other factors that may cause our or
our industry's actual results, levels of activity, performance, or achievements
to be materially different from any future results, levels of activity,
performance, or achievements expressed or implied by such forward-looking
statements.

     Among the important factors that could cause actual results to differ
materially from those indicated by such forward-looking statements are the
following:

     - unseasonable weather patterns that reduce demand for power and natural
       gas;

     - systemic economic slowdowns, which can adversely affect consumption of
       power by businesses and consumers;

     - the timing and extent of deregulation of energy markets and the rules and
       regulations adopted on a transitional basis with respect thereto;

     - the timing and extent of changes in commodity prices for energy,
       particularly natural gas and electricity;

     - commercial operations of new plants that may be delayed or prevented
       because of various development and construction risks, such as a failure
       to obtain financing and the necessary permits to operate or the failure
       of third-party contractors to perform their contractual obligations;

     - cost estimates are preliminary and actual costs may be higher than
       estimated;

     - a competitor's development of a lower-cost gas-fired power plant;

     - risks associated with marketing and selling power from power plants in
       the newly-competitive energy market;

     - the successful exploitation of an oil or gas resource that ultimately
       depends upon the geology of the resource, the total amount and cost to
       develop recoverable reserves and operational factors relating to the
       extraction of natural gas; and

     - other risks identified from time to time in our reports and registration
       statements filed with the SEC, including the risk factors identified in
       our Annual Report on Form 10-K for the year ended December 31, 2001,
       which is incorporated by reference in this prospectus.

     Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of such statements.

                                USE OF PROCEEDS

     The selling holders will receive all of the net proceeds of the resale of
the notes and our common stock issuable upon conversion of the notes. We will
not receive any of the proceeds from the resale of any of these securities.

                                        9
<PAGE>

                                SELLING HOLDERS

     We originally issued the notes to Deutsche Bank in a transaction exempt
from the registration requirements of the Securities Act. Deutsche Bank
immediately resold the notes in transactions exempt from the registration
requirements of the Securities Act to persons reasonably believed by them to be
qualified institutional buyers as defined in Rule 144A under the Securities Act.

     The selling holders, including their transferees, pledgees, donees or other
successors, may from time to time offer and sell pursuant to this prospectus any
or all of the notes and the common stock issuable upon conversion of the notes.
Any selling holder may also elect not to sell any notes or common stock issuable
upon conversion of the notes held by it. Only those notes and shares of common
stock issuable upon conversion of the notes listed below may be offered for
resale by the selling holders pursuant to this prospectus.

     The following table sets forth recent information with respect to the
selling holders of the notes and the respective number of notes beneficially
owned by each selling holder that may be offered for each selling holder's
account pursuant to this prospectus. We prepared this table based on information
supplied to us by or on behalf of the selling holders. The selling holders may
offer and sell all, some or none of the notes and the common stock issuable upon
conversion of the notes listed below by using this prospectus. Because the
selling holders may offer all or only some portion of the notes or the common
stock listed in the table, no estimate can be given as to the amount of those
securities that will be held by the selling holders upon termination of any
sales. In addition, the selling holders identified in the table below may have
sold, transferred or disposed of all or a portion of their notes or shares of
common stock issuable upon conversion of the notes since the date on which they
provided the information regarding their ownership of those securities included
in this prospectus.

<Table>
<Caption>
                                                                                                           SHARES OF
                                                                                                             COMMON
                                            AGGREGATE PRINCIPAL       SHARES OF          SHARES OF     STOCK BENEFICIALLY
                                              AMOUNT OF NOTES           COMMON            COMMON             OWNED
                                               BENEFICIALLY             STOCK              STOCK        AFTER COMPLETION
SELLING HOLDERS                              OWNED AND OFFERED    BENEFICIALLY OWNED      OFFERED       OF THE OFFERING
---------------                             -------------------   ------------------   -------------   ------------------
<S>                                         <C>                   <C>                  <C>             <C>
AFTRA Health Fund(1)......................          285,000              126,171            15,771            110,400
Allegheny Technologies Inc. Pension
  Plan(2).................................          500,000               27,670            27,670                  0
Allstate Insurance Company................        2,100,000              364,314           116,214            248,100
Allstate Life Insurance Company...........        1,250,000              317,275            69,175            248,100
Amaranth LLC(3)...........................       81,050,000            4,485,331         4,485,331                  0
Argent Classic Convertible Arbitrage Fund
  L.P. ...................................        3,900,000              215,827           215,827                  0
Argent Classic Convertible Arbitrage Fund
  (Bermuda) Ltd. .........................        5,000,000              276,701           276,701                  0
Argent LowLev Convertible Arbitrage Fund
  LLC.....................................          500,000               27,670            27,670                  0
Argent LowLev Convertible Arbitrage Fund
  Ltd. ...................................       10,000,000              553,403           553,403                  0
Banc of America Securities LLC............       11,500,000              636,413           636,413                  0
Banco Inversion S.A. .....................           55,000                3,043             3,043                  0
Bank Austria Cayman Islands, LTD..........        7,000,000              387,382           387,382                  0
Bank of America Pension Plan..............        2,000,000              110,680           110,680                  0
Barclays Global Investors LTD.............        1,500,000               83,010            83,010                  0
Brandywine Asset Management LLC...........        3,945,000              218,317           218,317                  0
BTES-Convertible Arb......................        1,700,000               94,078            94,078                  0
BTPO Growth Vs Value......................        6,800,000              376,314           376,314                  0
California Public Employees' Retirement
  System..................................      110,000,000            8,350,253         6,087,433          2,262,820
Castle Convertible Fund, Inc. ............          750,000               58,770            41,505             17,265
CitiCorp Life Insurance Company...........           19,000                1,051             1,051                  0
</Table>

                                        10
<PAGE>

<Table>
<Caption>
                                                                                                           SHARES OF
                                                                                                             COMMON
                                            AGGREGATE PRINCIPAL       SHARES OF          SHARES OF     STOCK BENEFICIALLY
                                              AMOUNT OF NOTES           COMMON            COMMON             OWNED
                                               BENEFICIALLY             STOCK              STOCK        AFTER COMPLETION
SELLING HOLDERS                              OWNED AND OFFERED    BENEFICIALLY OWNED      OFFERED       OF THE OFFERING
---------------                             -------------------   ------------------   -------------   ------------------
<S>                                         <C>                   <C>                  <C>             <C>
City of Shreveport Post Employees
  Retirement System(4)....................          245,000               13,558            13,558                  0
City of Stamford Police Pension Fund(2)...          160,000                8,854             8,854                  0
Commerzbank AG............................       18,250,000            1,076,055         1,009,960             66,095
Corporate High Yield Fund, Inc. ..........           25,000                1,383             1,383                  0
Corporate High Yield Fund II, Inc. .......           15,000                  830               830                  0
Corporate High Yield Fund III, Inc. ......          100,000                5,534             5,534                  0
Corporate High Yield Fund IV, Inc. .......           60,000                3,320             3,320                  0
Corporate High Yield Fund V, Inc. ........           85,000                4,703             4,703                  0
Credit Suisse First Boston Corp. .........        5,830,000              322,633           322,633                  0
CRT Capital Group LLC.....................       15,010,000              830,657           830,657                  0
Deutsche Bank AG New York.................          730,000               40,398            40,398                  0
ERSTE BANK der pesterreichischen
  Sparkassen AG...........................          200,000               11,068            11,068                  0
Fidelity Investments Life Insurance
  Company.................................          125,000                6,917             6,917                  0
GCBS U.S. High Yield Portfolio............          105,000                5,810             5,810                  0
General Motors Welfare Benefit Trust......        2,000,000              110,680           110,680                  0
Global Bermuda Limited Partnership........        1,400,000               77,476            77,476                  0
Goldman Sachs and Company.................       21,554,000            1,192,804         1,192,804                  0
Hartford Life Insurance Company...........          100,000                5,534             5,534                  0
The Hartford High Yield Fund..............          665,000               36,801            36,801                  0
The Hartford High Yield HLS Fund..........          735,000               40,675            40,675                  0
HBK Master Fund L.P. .....................       68,250,000            3,776,975         3,776,975                  0
Investors Group Trust Co. Ltd., As Trustee
  for Investors Canadian Large Cap Value
  Fund....................................       10,000,000            5,633,878           553,403          5,080,475
JMG Capital Partners, LP..................        3,250,000              533,275           179,855            353,420
JMG Convertible Investments, LP...........        8,750,000              724,047           484,227            239,820
JMG Triton Offshore Fund, Ltd. ...........       34,500,000            2,474,530         1,909,240            565,290
Julius Baer Securities....................        6,248,000              872,855           345,766            527,089
KBC Financial Products (Cayman Island)
  Limited.................................       56,180,000            3,109,018         3,109,018                  0
Koch Industries Inc. Master Pension
  Trust...................................          550,000               30,437            30,437                  0
Lakeshore International, LTD..............        5,600,000              309,905           309,905                  0
LB Series Fund Inc., High Yield
  Portfolio...............................        4,800,000              265,633           265,633                  0
LDG Limited(5)............................          250,000               13,835            13,835                  0
Lincoln National Convertible Securities
  Fund....................................        1,000,000               55,340            55,340                  0
Lockheed Martin Master Retirement Trust...          360,000               19,922            19,922                  0
Lutheran Brotherhood......................        3,000,000              381,920           166,020            215,900
Lutheran Brotherhood High Yield Fund......        3,200,000              177,088           177,088                  0
Lyxor Master Fund ref:
Argent/LowLev CB..........................        2,500,000              138,350           138,350                  0
Lyxor Master Fund ref HW..................        1,200,000               66,408            66,408                  0
Mainstay Convertible Fund(6)..............        3,650,000              201,992           201,992                  0
Mainstay VP Convertible Portfolio (7).....        1,230,000               68,068            68,068                  0
Managed Assets Trust......................          200,000               11,068            11,068                  0
McMahan Securities Co. L.P. ..............          135,000                7,470             7,470                  0
Merced Partners Limited Partnership.......        3,000,000              166,020           166,020                  0
Mid-State Surety Company..................           40,000                2,213             2,213                  0
Merrill Lynch Bond Fund, Inc. High Income
  Portfolio...............................        2,300,000              127,282           127,282                  0
Merrill Lynch Equity Convertible Series
  Global Allocation Portfolio.............        2,450,000              339,883           135,583            204,300
</Table>

                                        11
<PAGE>

<Table>
<Caption>
                                                                                                           SHARES OF
                                                                                                             COMMON
                                            AGGREGATE PRINCIPAL       SHARES OF          SHARES OF     STOCK BENEFICIALLY
                                              AMOUNT OF NOTES           COMMON            COMMON             OWNED
                                               BENEFICIALLY             STOCK              STOCK        AFTER COMPLETION
SELLING HOLDERS                              OWNED AND OFFERED    BENEFICIALLY OWNED      OFFERED       OF THE OFFERING
---------------                             -------------------   ------------------   -------------   ------------------
<S>                                         <C>                   <C>                  <C>             <C>
Merrill Lynch Global Allocation Fund,
  Inc. ...................................       20,180,000            2,716,767         1,116,767          1,600,000
Merrill Lynch Master US High Yield Fund,
  Inc. ...................................          175,000                9,684             9,684                  0
Merrill Lynch Variable Series Funds, Inc.
  Global Allocation Focus Fund............        1,330,000              175,502            73,602            101,900
Merrill Lynch Series Fund, Inc. Global
  Allocation Strategy Portfolio...........          540,000               69,583            29,883             39,700
Merrill Lynch Variable Series Fund, Inc.,
  High Current Income.....................          135,000                7,470             7,470                  0
Morgan Stanley and Co., Inc...............        2,000,000              110,680           110,680                  0
National Benefit Life Insurance Company...           11,000                  608               608                  0
New York Life Insurance Company(8)........        5,770,000              319,313           319,313                  0
New York Separate Account #7(9)...........          490,000               27,116            27,116                  0
Oakwood Healthcare Inc. (Pension).........          100,000                5,534             5,534                  0
Onyx Fund Holdings, LDC...................       20,000,000            1,106,806         1,106,806                  0
Oppenheimer Capital Income Fund...........       27,500,000            1,521,858         1,521,858                  0
Pacific Life Insurance Co. ...............        2,000,000              110,680           110,680                  0
Peoples Benefit Life Insurance Company --
  Teamsters...............................        9,600,000              531,266           531,266                  0
Performa Institutional Fund -- US Dollar
  Convertible Bond........................           70,000                3,873             3,873                  0
Primerica Life Insurance Company..........          455,000               25,179            25,179                  0
Prudential Trust Company Collective
  Employee Benefit Trust, Institutional
  High Yield Fund.........................          875,000               48,422            48,422                  0
Ramius Capital Group......................        1,500,000               83,010            83,010                  0
Ram Trading, LTD..........................       14,000,000              774,764           774,764                  0
RCG Halifax Master Fund, LTD..............        1,000,000               55,340            55,340                  0
RCG Latitude Master Fund, LTD.............        3,000,000              166,020           166,020                  0
RCG Multi Strategy, LP....................        3,500,000              193,691           193,691                  0
Reich & Tang Asset Management.............          250,000               13,835            13,835                  0
Retail Clerks Pension Trust...............        2,500,000              138,350           138,350                  0
Sagamore Hill Hub Fund LTD................       31,000,000            1,715,549         1,715,549                  0
St. Albans Partners LTD...................       18,000,000              996,125           996,125                  0
Sunrise Partners LLC(10)..................       23,850,000            1,319,866         1,319,866                  0
Tamarack International, Ltd. .............        3,000,000              166,020           166,020                  0
The Travelers Indemnity Company...........        1,092,000               60,431            60,431                  0
The Travelers Insurance Company -- Life...          826,000               45,711            45,711                  0
The Travelers Insurance
  Company -- Separate Account TLAC........           42,000                2,324             2,324                  0
The Travelers Life and Annuity Company....           55,000                3,043             3,043                  0
Travelers Series Trust Convertible Bond
  Portfolio...............................          300,000               16,602            16,602                  0
T. Rowe Price Corporate Income Fund,
  Inc. ...................................          190,000               10,514            10,514                  0
T. Rowe Price Life Plan Income Fund.......          400,000               22,136            22,136                  0
T. Rowe Price New Income Fund, Inc. ......          775,000               42,888            42,888                  0
TQA Master Fund Ltd. .....................        5,500,000              304,371           304,371                  0
TQA Master Plus Fund Ltd. ................        2,750,000              152,185           152,185                  0
Tribeca Investments, LLC..................       25,000,000            1,383,507         1,383,507                  0
UBS AG London Branch......................       79,000,000            4,371,883         4,371,883                  0
Von Ernst Global Portfolio -- Convertible
  Bond....................................          750,000               41,505            41,505                  0
</Table>

                                        12
<PAGE>

<Table>
<Caption>
                                                                                                           SHARES OF
                                                                                                             COMMON
                                            AGGREGATE PRINCIPAL       SHARES OF          SHARES OF     STOCK BENEFICIALLY
                                              AMOUNT OF NOTES           COMMON            COMMON             OWNED
                                               BENEFICIALLY             STOCK              STOCK        AFTER COMPLETION
SELLING HOLDERS                              OWNED AND OFFERED    BENEFICIALLY OWNED      OFFERED       OF THE OFFERING
---------------                             -------------------   ------------------   -------------   ------------------
<S>                                         <C>                   <C>                  <C>             <C>
Wachovia Bank National Association........       50,393,000            2,788,763         2,788,763                  0
Wachovia Securities International LTD.....       18,000,000              996,125           996,125                  0
Whitebox Convertible Arbitrage Partners
  LP......................................        8,000,000              442,722           442,722                  0
Yield Strategies Fund I, L.P. ............        6,000,000              332,041           332,041                  0
Yield Strategies Fund II, L.P. ...........        5,900,000              326,507           326,507                  0
Zurich Institutional Benchmark Master Fund
  Ltd. ...................................          900,000               49,806            49,806                  0
</Table>

---------------

 (1) According to AFTRA Health Fund, Mackay Shields LLC has shared investment
     authority over the Senior Notes.

 (2) According to GEM Capital Management, Inc., GEM Capital Management, Inc. has
     shared investment authority over the Senior Notes.

 (3) According to Amaranth LLC, Sunrise Partners LLC has shared investment
     authority over the Senior Notes.

 (4) According to City of Shreveport Post Employees Retirement System, Mackay
     Shields LLC has shared investment authority over the Senior Notes.

 (5) According to LDG Limited, TQA Investors LLC has sole investment authority
     and shared voting authority over the Senior Notes.

 (6) According to Mainstay Convertible Fund, Mackay Shields LLC has shared
     investment authority over the Senior Notes.

 (7) According to Mainstay VP Convertible Portfolio, Mackay Shields LLC has
     shared investment authority over the Senior Notes.

 (8) According to New York Life Insurance Company, Mackay Shields LLC has shared
     investment authority over the Senior Notes.

 (9) According to New York Separate Account #7, Mackay Shields LLC has shared
     investment authority over the Senior Notes.

(10) According to Sunrise Partners LLC, Amaranth LLC has shared investment
     authority over the Senior Notes.

     To our knowledge, other than their ownership of the securities described in
the above table, none of the selling holders has, or has had within the past
three years, any position, office or other material relationship with us or any
of our predecessors or affiliates, except that Deutsche Bank acted as the
initial purchaser of the notes and acts as an adviser to us from time to time
with respect to other matters.

                              PLAN OF DISTRIBUTION

     The notes and the common stock issuable upon conversion of the notes may be
offered and sold from time to time to purchasers directly by the selling
holders. Alternatively, the selling holders may from time to time offer those
securities to or through underwriters, broker-dealers or agents, who may receive
compensation in the form of underwriting discounts, concessions or commissions
from the selling holders or the purchasers of the securities for whom they act
as agents. The selling holders and any underwriters, broker-dealers or agents
that participate in the distribution of the securities may be deemed to be
"underwriters" within the meaning of the Securities Act, and any profit on the
sale of securities and any discounts, commissions, concessions or other
compensation received by any underwriter, broker-dealer or agent may be deemed
to be underwriting discounts and commissions under the Securities Act.

                                        13
<PAGE>

     The securities may be sold from time to time in one or more transactions at
fixed prices, at prevailing market prices at the time of sale, at varying prices
determined at the time of sale or at negotiated prices. The sale of the
securities may be effected in transactions, which may involve crosses or block
transactions:

     - on any national securities exchange or quotation service on which the
       securities may be listed or quoted at the time of sale;

     - in the over-the-counter market;

     - in transactions otherwise than on exchanges or in the over-the-counter
       market;

     - through the writing and exercise of options; or

     - through the settlement of short sales.

     At the time a particular offering of the securities is made, if required, a
prospectus supplement will be distributed, which will set forth the names of the
selling holders, the aggregate amount and type of securities being offered and
the terms of the offering, including the name or names of any underwriters,
broker-dealers or agents, any discounts, commissions and other terms
constituting compensation from the selling holders and any discounts,
commissions or concessions allowed or reallowed to paid broker-dealers.

     To comply with the securities laws of some jurisdictions, if applicable,
the securities will be offered or sold in some jurisdictions only through
registered or licensed brokers or dealers. In addition, in some jurisdictions
the securities may not be offered or sold unless they have been registered or
qualified for sale in those jurisdictions or any exemption from registration or
qualification is available and is complied with.

     The selling holders and any other person participating in the distribution
of securities will be subject to applicable provisions of the Securities
Exchange Act and the rules and regulations under the Securities Exchange Act,
including, without limitation, Regulation M of the Securities Exchange Act,
which may limit the timing of purchases and sales of any of the offered
securities by the selling holders and any other person. Furthermore, Regulation
M may restrict the ability of any person engaged in the distribution of the
offered securities to engage in market-making activities with respect to the
particular offered securities being distributed. Compliance with the Securities
Exchange Act, as described in this paragraph, may affect the marketability of
the offered securities and the ability of any person or entity to engage with
respect to the offered securities.

     Pursuant to a registration rights agreement, we have borne all fees and
expenses incurred in connection with the registration of the notes and the
common stock issuable upon conversion of the notes, except that selling holders
will pay all broker's commissions and underwriting discounts and commissions, if
any, in connection with any sales effected pursuant to this prospectus. We will
indemnify the selling holders against some civil liabilities, including some
liabilities under the Securities Act or the Securities Exchange Act or
otherwise, or alternatively the selling holders will be entitled to contribution
in connection with those liabilities.

                                        14
<PAGE>

                              DESCRIPTION OF NOTES

     We issued the notes under a document called the "indenture". The indenture
is a contract between us and Wilmington Trust Company, who is serving as
trustee. The law of the State of New York governs both the indenture and the
notes. In this section, references to "Calpine," "we," "our" or "us" refer
solely to Calpine Corporation and not its subsidiaries.

THE NOTES

     The notes are our senior, unsecured obligations and rank equally in right
of payment with all of our existing and future unsecured and unsubordinated
indebtedness. The notes are limited to an aggregate initial principal amount of
$1,200,000,000, plus accrued and unpaid interest. The notes will mature on
December 26, 2006 unless earlier repurchased by us at a holder's option on
December 26, 2004 or upon a change of control of Calpine.

     We issued the notes at a price to investors of $1,000 per note. Interest on
the notes will accrue at the rate of 4% per annum on the principal amount of
each note. We will make interest payments on the notes semiannually on June 26
and December 26 of each year, commencing on June 26, 2002. Interest on the notes
will accrue from the date of original issuance, or if interest has already been
paid, from the date it was most recently paid. We will make each interest
payment to holders of record of the notes on the immediately preceding June 11
and December 11, whether or not this day is a business day. Interest on the
notes will be computed on the basis of a 360-day year comprised of twelve 30-day
months.

CONVERSION RIGHTS

     You may surrender your notes for conversion into shares of our common stock
at any time prior to 5:00 p.m., New York City time, on the date that is two
business days prior to maturity of the notes, unless previously repurchased. You
may convert each note into one share of our common stock at the initial
conversion price of $18.07 per share of common stock which is equivalent to an
initial conversion ratio of approximately 55.3403 shares of common stock per
note. The conversion price and the equivalent conversion ratio in effect at any
given time are referred to in this prospectus as the applicable conversion price
and the applicable conversion ratio, respectively, and will be subject to
adjustment as described below. You may convert fewer than all of your notes so
long as the notes converted are a multiple of $1,000 principal amount.

     Upon conversion of any notes on a date that is not an interest payment
date, you will not be entitled to receive any cash payment representing accrued
and unpaid interest for the period from the immediately preceding interest
payment date to the conversion date with respect to the converted notes.
However, if notes are converted after a regular record date and prior to the
opening of business on the next interest payment date, including the date of
maturity, holders of the notes at the close of business on the regular record
date will receive the interest payable on the notes on the corresponding
interest payment date notwithstanding the conversion. Upon conversion we will
deliver to you a fixed number of shares of common stock and any cash payment to
account for fractional shares. The cash payment for fractional shares will be
based on the closing price of our common stock on the New York Stock Exchange
trading day immediately prior to the conversion date. Delivery of shares of our
common stock will be deemed to satisfy our obligation to pay the principal
amount of the notes, including accrued interest, except if conversion occurs
after the regular record date. Accrued interest will be deemed paid in full
rather than canceled, extinguished or forfeited. We will not adjust the
conversion price to account for the accrued interest.

     If you wish to exercise your conversion right, you must deliver an
irrevocable conversion notice, together, if the notes are in certificated form,
with the certificated security, to the conversion agent who will, on your
behalf, convert the notes into shares of our common stock. You may obtain copies
of the required form of the conversion notice from the conversion agent.

                                        15
<PAGE>

     The conversion price will be subject to adjustment, without duplication,
upon the following events:

     - the payment of dividends and other distributions payable exclusively in
       shares of our common stock on our common stock;

     - the issuance to all holders of our common stock of rights or warrants
       that allow the holders to purchase shares of our common stock at less
       than the current market price; provided that no adjustment will be made
       if holders of the notes may participate in the transaction on a basis and
       with notice that our board of directors determines to be fair and
       appropriate or in some other cases;

     - subdivisions or combinations of our common stock;

     - the payment of dividends and other distributions to all holders of our
       common stock, consisting of evidences of our indebtedness, securities or
       capital stock, cash or assets, except for those rights or warrants
       referred to in the second bullet point above and dividends and other
       distributions paid exclusively in cash; provided that no adjustment will
       be made if all holders of the notes may participate in the transactions;

     - the payment to holders of our common stock in respect of a tender or
       exchange offer, other than an odd-lot offer, by us or any of our
       subsidiaries for our common stock to the extent that the offer involves
       aggregate consideration that, together with (1) any cash and the fair
       market value of any other consideration payable in respect of any tender
       offer by us or any of our subsidiaries for shares of our common stock
       consummated within the preceding 12 months not triggering a conversion
       price adjustment and (2) all-cash distributions to all or substantially
       all stockholders made within the preceding 12 months not triggering a
       conversion price adjustment, exceeds an amount equal to 12.5% of the
       market capitalization of our common stock on the expiration date of the
       tender offer; and

     - the distribution to all or substantially all holders of our common stock
       of all-cash distributions in an aggregate amount that, together with (1)
       any cash and the fair market value of any other consideration payable in
       respect of any tender offer by us or any of our subsidiaries for shares
       of our common stock consummated within the preceding 12 months not
       triggering a conversion price adjustment and (2) all other all-cash
       distributions to all or substantially all holders of our common stock
       made within the preceding 12 months not triggering a conversion price
       adjustment, exceeds an amount equal to 12.5% of the market capitalization
       of our common stock on the business day immediately preceding the day on
       which we declare the distribution.

     The applicable conversion price will not be adjusted:

     - upon the issuance of any shares of our common stock pursuant to any
       present or future plan providing for the reinvestment of dividends or
       interest payable on securities of Calpine and the investment of
       additional optional amounts in shares of our common stock under any plan;

     - upon the issuance of any shares of our common stock or options or rights
       to purchase those shares pursuant to any present or future employee,
       director or consultant benefit plan or program of Calpine;

     - upon the issuance of any shares of our common stock pursuant to any
       option, warrant, right, or exercisable, exchangeable or convertible
       security outstanding as of the date the notes were first issued; or

     - upon the issuance of any rights, any distribution of separate
       certificates representing the rights, any exercise or redemption of any
       rights or any termination or invalidation of the rights, pursuant to our
       stockholders rights plan.

     We may decrease the conversion price for at least 20 days, so long as the
decrease is irrevocable during that 20-day period. No adjustment in the
applicable conversion price will be required unless the adjustment would require
an increase or decrease of at least 1% of the applicable conversion price. If
the adjustment is not made because the adjustment does not change the applicable
conversion price by more
                                        16
<PAGE>

than 1%, then the adjustment that is not made will be carried forward and taken
into account in any future adjustment. Except as specifically described above,
the applicable conversion price will not be subject to adjustment in the case of
the issuance of any of our common stock, or securities convertible into or
exchangeable for our common stock.

REPURCHASE RIGHT

     You have the right to require us to repurchase all or a portion of your
notes on December 26, 2004. We will be required to repurchase any outstanding
notes for which you deliver a written repurchase notice to the paying agent.
This notice must be delivered during the period beginning at any time from the
opening of business on the date that is 20 business days prior to the repurchase
date until the close of business on the last business day prior to the
repurchase date. If the repurchase notice is given and withdrawn during the
period, we will not be obligated to repurchase the related notes. Our repurchase
obligation will be subject to some additional conditions set forth in the
indenture.

     The repurchase price payable will be equal to the issue price plus any
accrued and unpaid interest to the repurchase date.

     We may choose, in our sole discretion, to pay the repurchase price in cash
or shares of our common stock, or a combination of cash and shares of our common
stock. For a discussion of the tax treatment of a holder receiving cash, shares
of our common stock or any combination of cash and shares of common stock, see
"Material United States Federal Income Tax Consequences."

     If we choose to pay the repurchase price, in whole or in part, in shares of
our common stock or a combination of cash and shares of our common stock, we
will be required to give notice on a date not less than 20 business days prior
to the repurchase date to all holders at their addresses shown in the register
of the registrar, and to beneficial owners as required by applicable law stating
among other things:

     - whether we will pay the repurchase price of the notes in cash, in shares
       of our common stock, or any combination of cash and shares of common
       stock, and specifying the percentages of each;

     - if we elect to pay with shares of our common stock, the method of
       calculating the price of the common stock; and

     - the procedures that holders must follow to require us to repurchase their
       notes.

If we do not provide you with this notice, we will pay the repurchase price in
cash.

     Simultaneously with a notice of purchase, we will disseminate a press
release through Dow Jones & Company, Inc. or Bloomberg Business News containing
this information and publish the information on our web site or through other
public media as we may use at that time.

     If we pay with shares of our common stock, the shares will be valued at
100% of the market price for our common stock.

     The "market price" means the average of the sale prices of our common stock
for the five trading day period ending on the third business day, if the third
business day prior to the repurchase date is a trading day, or if not, then on
the last trading day prior to the third business day, prior to the repurchase
date, appropriately adjusted to take into account the occurrence, during the
period commencing on the first of the trading days during the five trading day
period and ending on the repurchase date, of events that would result in an
adjustment of the conversion rate with respect to our common stock.

     The "sale price" of our common stock on any date means the closing sale
price per share, or if no closing sale price is reported, the average of the bid
and ask prices or, if more than one in either case, the average of the average
bid and the average ask prices, on that date as reported in composite
transactions for the principal U.S. securities exchange on which our shares of
common stock are traded or, if our shares are not listed on a U.S. national or
regional securities exchange, as reported by The Nasdaq System.

                                        17
<PAGE>

     Your notice electing to require us to repurchase your notes must state:

     - if certificated notes have been issued, the certificate numbers of the
       notes, or if not certificated, your notice must comply with appropriate
       DTC procedures;

     - the portion of the principal amount of notes to be repurchased, in
       multiples of $1,000;

     - that the notes are to be repurchased by us pursuant to the applicable
       provisions of the notes; and

     - in the event we elect, pursuant to the notice that we are required to
       give, to pay the repurchase price in shares of common stock, in whole or
       in part, but the repurchase price is ultimately to be paid to the holder
       entirely in cash because any of the conditions to payment of the
       repurchase price or portion of the repurchase price in shares of common
       stock is not satisfied prior to the close of business on the last day
       prior to the repurchase date, as described below, whether the holder
       elects:

             (1) to withdraw the repurchase notice as to some or all of the
        notes to which it relates, or

             (2) to receive cash in respect of the entire repurchase price for
        all notes or portions of notes subject to the repurchase notice.

     If the holder fails to indicate the holder's choice with respect to the
election described in the final bullet point above, the holder will be deemed to
have elected to receive cash in respect of the entire repurchase price for all
notes subject to the repurchase notice in these circumstances. For a discussion
of the tax treatment of a holder receiving cash instead of shares of our common
stock, see "Material United States Federal Income Tax Consequences."

     You may withdraw any repurchase notice by a written notice of withdrawal
delivered to the paying agent prior to the close of business on the last day
prior to the repurchase date. The notice of withdrawal must state:

     - the principal amount of the withdrawn notes;

     - if certificated notes have been issued, the certificate numbers of the
       withdrawn notes, or if not certificated, your notice must comply with
       appropriate DTC procedures; and

     - the principal amount, if any, which remains subject to the repurchase
       notice.

     If we elect to pay the repurchase price, in whole or in part, in shares of
our common stock, the number of shares to be delivered by us will be equal to
the portion of the repurchase price to be paid in shares of our common stock
divided by the market price of one share of our common stock as determined by us
in our repurchase notice. We will pay cash based on the market price for all
fractional shares.

     Because the market price of our common stock is determined prior to the
repurchase date, holders of notes bear the market risk with respect to the value
of the common stock to be received from the date the market price is determined
to the repurchase date. We may pay the repurchase price or any portion of the
repurchase price in shares of common stock only if the information necessary to
calculate the market price is published in a daily newspaper of national
circulation, by dissemination on the World Wide Web or by other public means.

     Upon determination of the actual number of shares of common stock to be
paid upon repurchase of the notes, we will disseminate a press release not later
than three business days prior to the repurchase date through Dow Jones &
Company, Inc. or Bloomberg Business News containing this information and publish
the information on our Website on the World Wide Web or through other public
media as we may use at that time.

     A holder must either effect book-entry transfer or deliver the notes,
together with necessary endorsements, to the office of the paying agent after
delivery of the repurchase notice to receive payment of the repurchase price.
You will receive payment on the later of the repurchase date or the time of
book-

                                        18
<PAGE>

entry transfer or the delivery of the notes. If the paying agent holds money or
securities sufficient to pay the repurchase price of the notes on the business
day following the repurchase date, then:

     - the notes will cease to be outstanding;

     - interest will cease to accrue; and

     - all other rights of the holder of the notes will terminate.

     This will be the case whether or not book-entry transfer of the notes is
made or whether or not the notes are delivered to the paying agent.

     We will comply with the provisions of Rule 13e-4 under the Securities
Exchange Act and any other tender offer rules under the Securities Exchange Act
which may be applicable at the time of a repurchase of notes. We will file
Schedule TO or any other schedule required in connection with any offer by us to
repurchase the notes at your option.

RANKING

     The notes are unsecured and are effectively subordinated to all of our
existing and future secured indebtedness to the extent of the value of the
assets securing that indebtedness, including, without limitation, indebtedness
under (1) the Credit Agreement, dated as of March 8, 2002, among us, as
borrower, certain commercial lending institutions, as lenders, The Bank of Nova
Scotia and Bayerische Landesbank Girozentrale, as lead arrangers and bookrunners
on the revolving facility, Salomon Smith Barney Inc. and Deutsche Banc Alex.
Brown Inc., as lead arrangers and bookrunners on the Term B facility, The Bank
of Nova Scotia and Citicorp USA Inc., as joint administrative agents, The Bank
of Nova Scotia, as funding agent, Bank of America, National Association, and
Credit Suisse First Boston, Cayman Islands Branch, as lead arrangers and
syndication agents for the revolving facility, and TD Securities (USA) Inc., as
lead arranger for the revolving facility, and (2) the Amended and Restated
Credit Agreement, dated as of May 23, 2000, as amended, among us, as borrower,
the Bank of Nova Scotia, as lead arranger and administrative agent, Bayerische
Landesbank Girozentrale, as co-arranger and syndication agent, and the various
commercial lending institutions named therein as lenders, in each case as such
credit agreement may be amended, refinanced, replaced, renewed or extended from
time to time. Indebtedness under the March 8, 2002 credit agreement and the May
23, 2000 credit agreement is secured by, among other things, our pledge of all
of the capital stock of our subsidiaries holding, directly or indirectly, the
interests in our natural gas properties, the Saltend power plant located in the
United Kingdom and our equity investment in nine U.S. power plants, a pledge by
certain of our subsidiaries of a total of 65% of the capital stock of Calpine
Canada Energy Ltd. and a pledge of substantially all of our remaining first tier
domestic subsidiaries (excluding Calpine Energy Services, L.P.). Holders of
existing or future secured indebtedness, including indebtedness under the March
8, 2002 credit agreement and the May 23, 2000 credit agreement, will have claims
with respect to assets constituting collateral that are prior to the claims of
the holders of the notes.

     The notes rank equal in right of payment with all of our existing and
future unsecured and unsubordinated indebtedness, including, without limitation,
our obligations under (1) our other outstanding senior debt securities,
including our 7 5/8% Senior Notes Due 2006, our 7 3/4% Senior Notes Due 2009,
our 7 7/8% Senior Notes Due 2008, our 8 3/4% Senior Notes Due 2007, our 10 1/2%
Senior Notes Due 2006, our 8 1/4% Senior Notes Due 2005, our 8 5/8% Senior Notes
Due 2010, our 8 1/2% Senior Notes Due 2011, and our Zero-Coupon Convertible
Debentures Due 2021 and (2) indebtedness of our subsidiaries guaranteed by us,
including the 8 1/2% Senior Notes Due 2008 and the 8 3/4% Senior Notes Due 2007
issued by Calpine Canada Energy Finance ULC and the 8 7/8% Senior Notes Due 2011
and the 8 3/8% Senior Notes Due 2008 issued by Calpine Canada Energy Finance II
ULC. As of March 31, 2002, we had approximately $7.7 billion of indebtedness
outstanding, none of which was secured, that would rank equally with the notes.
We currently can borrow up to $1.0 billion under the revolving credit facilities
under the March 8, 2002 credit agreement and the May 23, 2000 credit agreement,
and up to an additional $1.0 billion in term loans under the March 8, 2002
credit agreement, all of which will be secured. As of May 31, 2002, we had

                                        19
<PAGE>

$75 million in borrowings outstanding under the revolving credit facilities and
$1.0 billion outstanding under the term loans under these credit agreements.

     We currently conduct substantially all our operations through our
subsidiaries, and our subsidiaries generate substantially all of our operating
income and cash flow. As a result, distributions or advances from our
subsidiaries are the principal source of funds necessary to meet our debt
service obligations. Contractual provisions or laws, as well as our
subsidiaries' financial condition and operating requirements, may limit our
ability to obtain cash from our subsidiaries that we require to pay our debt
service obligations, including payments on the notes. In addition, holders of
the notes will have a junior position to the claims of creditors of our
subsidiaries on their assets and earnings. As of March 31, 2002, our
subsidiaries had $3.4 billion of project finance debt, to which the notes are
structurally subordinated.

CHANGE IN CONTROL

     If a change in control occurs, a holder of notes will have the right, at
its option, to require us to repurchase all of its notes, or any portion of the
principal amount of the notes, that is equal to $1,000 or an integral multiple
of $1,000. The price we will be required to pay is equal to the issue price plus
any accrued and unpaid interest to the date of repurchase.

     At our option, instead of paying the repurchase price in cash, we may pay
the repurchase price in registered shares of our common stock valued at 95% of
the market price. We may only pay the repurchase price in shares of our common
stock if we satisfy conditions provided in the indenture.

     Within 30 days after the occurrence of a change in control, we are
obligated to give to the holders of notes notice of the change in control and of
the repurchase right arising as a result of the change in control. We must also
deliver a copy of this notice to the trustee. To exercise the repurchase right,
a holder of notes must deliver on or before the 30th day after the date of our
notice irrevocable written notice to the trustee of the holder's exercise of its
repurchase right, together with the notes with respect to which the right is
being exercised. We are required to repurchase the notes on the date that is 45
days after the date of our notice.

     Simultaneously with a notice of a change in control, we will disseminate a
press release through Dow Jones & Company, Inc. or Bloomberg Business News
containing this information and publish the information on our Web site or
through other public media as we may use at that time.

     A change in control will be deemed to have occurred at the time after the
notes are originally issued that any of the following occurs:

     - any person, including any syndicate or group deemed to be a "person"
       under Section 13(d)(3) of the Securities Exchange Act, acquires
       beneficial ownership, directly or indirectly, through a purchase, merger
       or other acquisition transaction or series of transactions, of shares of
       our capital stock entitling the person to exercise 50% or more of the
       total voting power of all shares of our capital stock that is entitled to
       vote generally in elections of directors, other than an acquisition by
       us, any of our subsidiaries or any of our employee benefit plans; or

     - we merge or consolidate with or into any other person, any merger of
       another person into us, or we convey, sell, transfer or lease all or
       substantially all of our assets to another person, other than any
       transaction:

             (1) that does not result in any reclassification, conversion,
        exchange or cancellation of outstanding shares of our capital stock, or

             (2) pursuant to which the holders of our common stock immediately
        prior to the transaction have the entitlement to exercise, directly or
        indirectly, 50% or more of the total voting power of all shares of
        capital stock entitled to vote generally in the election of directors of
        the continuing or surviving corporation immediately after the
        transaction, or

                                        20
<PAGE>

             (3) which is effected solely to change our jurisdiction of
        incorporation and results in a reclassification, conversion or exchange
        or outstanding shares of our common stock solely into shares of common
        stock of the surviving entity.

     However, a change in control will not be deemed to have occurred if either:

     - the closing price per share of our common stock on the New York Stock
       Exchange for any five New York Stock Exchange trading days within the
       period of 10 consecutive New York Stock Exchange trading days ending
       immediately after the later of the change in control or the public
       announcement of the change in control, in the case of a change in control
       relating to an acquisition of capital stock, or the period of 10
       consecutive New York Stock Exchange trading days ending immediately
       before the change in control, in the case of change in control relating
       to a merger, consolidation or asset sale, equals or exceeds 105% of the
       conversion price of the notes in effect on each of those New York Stock
       Exchange trading days; or

     - all of the consideration, excluding cash payments for fractional shares
       and cash payments made pursuant to dissenters' appraisal rights, in a
       merger or consolidation otherwise constituting a change in control under
       the two bullet points of the preceding sentence consists of shares of
       common stock traded on a national securities exchange or quoted on the
       Nasdaq National Market, or will be so traded or quoted immediately
       following the merger or consolidation, and as a result of the merger or
       consolidation the notes become convertible into that common stock.

     For purposes of these provisions:

     - the conversion price is equal to $1,000 divided by the conversion rate;

     - whether a person is a "beneficial owner" will be determined in accordance
       with Rule 13d-3 under the Securities Exchange Act; and

     - "person" includes any syndicate or group that would be deemed to be a
       "person" under Section 13(d)(3) of the Securities Exchange Act.

     Rule 13e-4 under the Securities Exchange Act requires the dissemination of
prescribed information to security holders in the event of an issuer tender
offer and may apply in the event that the repurchase option becomes available to
the holders of notes. We will comply with this rule to the extent it applies at
that time.

     The definition of change in control includes a phrase relating to the
conveyance, transfer, sale, lease or disposition of "all or substantially all"
of our assets. There is no precise, established definition of the phrase
"substantially all" under applicable law. Accordingly, the ability of a holder
of notes to require us to repurchase its notes as a result of the conveyance,
transfer, sale, lease or other disposition of less than all of our assets may be
uncertain.

     The foregoing provisions would not necessarily provide the holders of notes
with protection if we are involved in a highly leveraged or other transaction
that may adversely affect the holders.

     If a change in control were to occur, we may not have enough funds to pay
the repurchase price. We have previously incurred, and may in the future incur,
other indebtedness with similar change in control provisions permitting its
holders to accelerate or to require us to repurchase our indebtedness upon the
occurrence of similar events or on some specified dates. If we fail to
repurchase the notes when required following a change in control, we will be in
default under the indenture.

                                        21
<PAGE>

MERGER AND SALES OF ASSETS BY CALPINE

     We may not consolidate with or merge with or into any other person or sell,
assign, convey, transfer, or lease or otherwise dispose of all or substantially
all of our properties and assets as an entirety to any person unless:

     - we shall be the surviving corporation;

     - the person formed by the consolidation or into which we are merged or the
       person to which our properties and assets are so sold, assigned,
       conveyed, transferred, leased or otherwise disposed of, shall be a
       corporation organized and existing under the laws of the United States,
       any State within the United States or the District of Columbia and shall
       expressly assume, in a form reasonably satisfactory to the trustee, all
       of our obligations under the indenture and the notes; and

     - immediately after giving effect to the transaction, no event of default
       with respect to the notes will have occurred and be continuing.

EVENTS OF DEFAULT

     The following are events of default with respect to the notes:

     - default for 30 days in payment of any interest installment due and
       payable on the notes;

     - default in payment of principal of the notes and accrued interest at
       maturity, upon repurchase or following a change in control, when the same
       becomes due and payable;

     - material default in our performance of any other covenants or agreements
       in the notes or the indenture which default continues for 30 days after
       the date on which written notice of the material default is given to us
       by the trustee or to us and trustee by the holders of at least 25% in
       principal amount of the then outstanding notes;

     - default by us under any instrument or instruments under which there is or
       may be secured or evidenced any of our indebtedness other than the notes
       having an outstanding principal amount of $50,000,000, or its equivalent
       in any other currency or currencies, or more, individually or in the
       aggregate, that has caused the holders of the indebtedness to declare the
       indebtedness to be due and payable prior to its stated maturity, unless
       the declaration has been rescinded within 30 days;

     - default in the payment of the principal of any bond, debenture, note or
       other evidence of our indebtedness, in each case for money borrowed, or
       in the payment of principal under any mortgage, indenture, agreement or
       instrument under which there may be issued or by which there may be
       secured or evidenced any indebtedness of ours for money borrowed, which
       default for payment of principal is individually or in an aggregate
       principal amount exceeding $50,000,000, or its equivalent in any other
       currency or currencies, when the indebtedness becomes due and payable,
       whether at maturity, upon redemption or acceleration or otherwise, if the
       default shall continue unremedied or unwaived for more than 30 days after
       the expiration of any grace period or extension of the time for payment
       applicable thereto; and

     - some events of bankruptcy, insolvency and reorganization of Calpine.

     The indenture requires that we file annually with the trustee a certificate
describing any default by us in the performance of any conditions or covenants
that has occurred under the indenture and its status. We must give the trustee,
within 30 days after the occurrence of a default, written notice of any event
which with the giving of notice or lapse of time or both would become an event
of default described in the third, fourth or fifth bullet points above.

     The indenture provides that if an event of default, other than an event of
default relating to events of bankruptcy, insolvency and reorganization, occurs
and is continuing with respect to the notes, either the trustee or the
registered holders of at least 25% in aggregate principal amount of the notes,
may declare the issue price plus accrued and unpaid interest on the notes to be
due and payable immediately. If an

                                        22
<PAGE>

event of default relating to events of bankruptcy, insolvency or reorganization
occurs, the issue price plus accrued and unpaid interest on the notes will
become immediately due and payable without any action on the part of the trustee
or any holder. At any time after a declaration of acceleration, but before a
judgment or decree for payment of money has been obtained, if all events of
default with respect to the notes have been cured or waived, other than the
nonpayment of the issue price or accrued and unpaid interest on the notes which
has become due solely by reason of the declaration of acceleration, then the
declaration of acceleration shall be automatically annulled and rescinded.

     A holder of notes may pursue any remedy under the indenture only if:

     - the holder gives the trustee written notice of a continuing event of
       default for the notes;

     - the registered holders of at least 25% in principal amount of the
       outstanding notes make a written request to the trustee to pursue the
       remedy;

     - the registered holder offers to the trustee security and indemnity
       reasonably satisfactory to the trustee against any loss, liability or
       expense;

     - the trustee fails to act for a period of 60 days after receipt of notice,
       request and offer of security or indemnity; and

     - during that 60-day period, the holders of a majority in principal amount
       of the notes do not give the trustee a direction inconsistent with the
       request.

     This provision does not, however, affect the right of a holder of notes to
sue for enforcement of payment of the principal of or interest, including
liquidated damages on the holder's note on or after the respective due dates
expressed or provided for in its note or the holder's right to convert its note
in accordance with the indenture.

     The trustee is entitled under the indenture, subject to the duty of the
trustee during a default to act with the required standard of care, to be
indemnified before proceeding to exercise any right or power under the indenture
at the direction of the registered holders of the notes or which requires the
trustee to expend or risk its own funds or otherwise incur any financial
liability. The indenture also provides that the registered holders of a majority
in principal amount of the outstanding notes may direct the time, method and
place of conducting any proceeding for any remedy available to the trustee or
exercising any trust or power conferred on the trustee with respect to the
notes. The trustee, however, may refuse to follow any direction that the trustee
determines is unduly prejudicial to the rights of other registered holders of
the notes, or would involve the trustee in personal liability; provided that the
trustee may take any other action deemed proper by it that is not inconsistent
with the direction.

     The indenture provides that while the trustee generally must mail notice of
a default or event of default to the registered holders of the debt securities
of any series issued under the indenture within 90 days of the trustee's actual
knowledge of the occurrence, the trustee may withhold notice of any default or
event of default, except in payment on the debt securities, if the trustee in
good faith determines that the withholding of notice is in the interest of the
registered holders of that series of debt securities.

LIMITATION ON SALE/LEASEBACK TRANSACTIONS

     Under the terms of the indenture, we shall not, and shall not permit any of
our restricted subsidiaries to, enter into any sale/leaseback transaction
unless:

     - we or the restricted subsidiary would be entitled to create a lien on the
       property or asset subject to the sale/leaseback transaction securing
       indebtedness in an amount equal to the attributable debt with respect to
       that transaction without equally and ratably securing the debt securities
       pursuant to the covenant entitled "Limitation on Liens"; or

     - the net proceeds of the sale are at least equal to the fair value, as
       determined by the board of directors of Calpine, of the property or asset
       subject to the sale/leaseback transaction and Calpine, or the restricted
       subsidiary applies or causes to be applied, within 180 days of the
       effective date of
                                        23
<PAGE>

       the sale/leaseback transaction, an amount in cash equal to the net
       proceeds of the sale to the retirement of indebtedness of Calpine, or of
       the restricted subsidiary.

     In addition to the transactions permitted pursuant to the two bullet points
in the preceding sentence, we or any of our restricted subsidiaries may enter
into a sale/leaseback transaction as long as the sum of:

     - the attributable debt with respect to that sale/leaseback transaction and
       all other sale/leaseback transactions entered into pursuant to this
       provision; plus

     - the amount of outstanding indebtedness secured by liens incurred pursuant
       to the final provision to the covenant described under "-- Limitation on
       Liens" below;

does not exceed 15% of consolidated net tangible assets as determined based on
Calpine's consolidated balance sheet as of the end of the most recent fiscal
quarter for which financial statements are available. In addition, any
restricted subsidiary may enter into a sale/leaseback transaction with respect
to property or assets owned by that restricted subsidiary so long as the
proceeds of that sale/leaseback transaction are used to acquire, develop,
construct, or repay within 365 days of the commencement of full commercial
operation of any property or assets indebtedness incurred to acquire, develop or
construct property or assets of any restricted subsidiary.

     As used in the indenture, the following terms are defined as follows:

     "attributable debt" means, as at the time of determination, the present
value, discounted at the rate of interest set forth or implicit in terms of the
lease or, if not practicable to determine that rate, the weighted average rate
of interest borne by the debt securities outstanding hereunder calculated, in
the event of the issuance of any original issue discount debt securities, based
on the imputed interest rate with respect thereto, compounded annually of the
total obligations of the lessee for rental payments during the remaining term of
the lease included in a sale/leaseback transaction, including any period for
which a lease has been extended;

     "capitalized lease obligations" of a person means the rental obligations
under any lease of any property whether real, personal or mixed of which the
discounted present value of the rental obligations of that person as lessee, in
conformity with generally accepted accounting principles, is required to be
capitalized on the balance sheet of that person; the stated maturity of any
lease shall be the date of the last payment of rent or any other amount due
under that lease prior to the first date upon which that lease may be terminated
by the lessee without payment of a penalty;

     "consolidated current liabilities," as of the date of determination, means
our aggregate amount of consolidated liabilities, and those of restricted
subsidiaries, which may properly be classified as current liabilities, including
taxes accrued as estimated, after eliminating (1) all inter-company items
between Calpine and its subsidiaries and (2) all current maturities of long-term
indebtedness, all as determined in accordance with generally accepted accounting
principles;

     "consolidated net tangible assets" means, as of any date of determination,
the total amount of consolidated assets, less accumulated depreciation or
amortization, allowances for doubtful receivables, other applicable reserves and
other properly deductible items, under generally accepted accounting principles
which would appear on our consolidated balance sheet and that of our
subsidiaries, determined in accordance with generally accepted accounting
principles, and after giving effect to purchase accounting and after deducting
therefrom, to the extent otherwise included, the amounts of:

          (1) consolidated current liabilities;

          (2) minority interests in our restricted subsidiaries held by a third
     person or another restricted subsidiary;

          (3) excess of cost over fair value of assets of businesses acquired,
     as determined in good faith by Calpine's board of directors;

                                        24
<PAGE>

          (4) any revaluation or other write-up in value of assets subsequent to
     December 31, 1993 as a result of a change in the method of valuation in
     accordance with generally accepted accounting principles;

          (5) unamortized debt discount and expenses and other unamortized
     deferred charges, goodwill, patents, trademarks, service marks, trade
     names, copyrights, licenses, organization or developmental expenses and
     other intangible items;

          (6) treasury stock; and

          (7) any cash set apart and held in a sinking or other analogous fund
     established for the purpose of redemption or other retirement of capital
     stock to the extent that obligation is not reflected in consolidated
     current liabilities;

     "indebtedness" of any person means, without duplication:

          (1) the principal of and premium, if any premium is then due and
     owing, in respect of indebtedness of that person for money borrowed;

          (2) all capitalized lease obligations of that person;

          (3) all obligations of that person for the reimbursement of any
     obligor on any letter of credit, banker's acceptance or similar credit
     transaction, other than obligations with respect to letters of credit
     securing obligations, other than obligations described in clauses (1) and
     (2) above, entered into in the ordinary course of business of that person
     to the extent the letters of credit are not drawn upon or, if and to the
     extent drawn upon, that drawing is reimbursed no later than the tenth
     business day following receipt by that person of a demand for reimbursement
     following payment on the letter of credit;

          (4) all obligations of the type referred to in clauses (1) through (3)
     above of other persons and all dividends of other persons for the payment
     of which, in either case, that person is responsible or liable, directly or
     indirectly, as obligor, guarantor or otherwise; and

          (5) all obligations of the type referred to in clauses (1) through (4)
     above of other persons secured by any lien on any property or asset of that
     person whether or not the obligation is assumed by that person, the amount
     of the obligation on any date of determination being deemed to be the
     lesser of the value of the property or assets or the amount of the
     obligation so secured.

     The amount of indebtedness of any person at any date shall be, with respect
to unconditional obligations, the outstanding balance at that date of all
obligations described above and, with respect to any contingent obligations at
that date, the maximum liability determined by that person's board of directors,
in good faith, as in light of the facts and circumstances existing at the time,
reasonably likely to be incurred upon the occurrence of the contingency giving
rise to the obligation;

     "lien" means any mortgage, lien, pledge, charge, or other security interest
or encumbrance of any kind, including any conditional sale or other title
retention agreement and any lease in the nature thereof;

     "preferred stock," as applied to the capital stock of any corporation,
means capital stock of any class or classes, however designated, which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of the corporation,
over shares of capital stock of any other class of the corporation;

     "restricted subsidiary" means any subsidiary of a person that is not
designated an unrestricted subsidiary by that person's board of directors;

     "sale/leaseback transaction" means an arrangement relating to property now
owned or later acquired whereby a person or a person's subsidiary transfers that
property to another person and then leases it back from that person, other than
leases for a term of not more than 36 months or leases between a person and a
wholly-owned subsidiary of the person or between the person's wholly-owned
subsidiaries;

                                        25
<PAGE>

     "senior indebtedness" means all indebtedness incurred, assumed or
guaranteed by a person, whether or not represented by bonds, debentures, notes
or other securities, for money borrowed, and any deferrals, renewals or
extensions or refunding of any indebtedness, unless in the instrument creating
or evidencing the indebtedness or pursuant to which the indebtedness is
outstanding it is specifically stated, at or prior to the time the person
becomes liable in respect thereof, that any indebtedness or deferral, renewal,
extension or refunding of indebtedness is not senior indebtedness;

     "subordinated security" means any security issued under an indenture which
is designated as a subordinated debt security; and

     "unrestricted subsidiary" means (1) any subsidiary that at the time of
determination shall be designated an unrestricted subsidiary by a person's board
of directors in the manner provided below and (2) any subsidiary of an
unrestricted subsidiary. A person's board of directors may designate any
subsidiary, including any newly acquired or newly formed subsidiary, to be an
unrestricted subsidiary unless the subsidiary owns any capital stock of, or owns
or holds any lien on any property of, that person or any other subsidiary of
that person that is not a subsidiary of the subsidiary to be so designated, so
long as the subsidiary to be designated an unrestricted subsidiary and all other
subsidiaries previously so designated at the time of any determination hereunder
shall, in the aggregate, have total assets not greater than 5% of consolidated
net tangible assets as determined based on the consolidated balance sheet of the
person as of the end of the most recent financial quarter for which financial
statements are available. A person's board of directors may designate any
unrestricted subsidiary to be a restricted subsidiary; provided, however, that
immediately after giving effect to that designation no default or event of
default under the indenture shall have occurred and be continuing. Any
designation by a person's board of directors shall be evidenced to the trustee
by promptly filing with the trustee a copy of the board resolution giving effect
to the designation and a certificate signed by two of that person's officers
certifying that the designation complied with these provisions. However, the
failure to file the resolution and/or certificate with the trustee shall not
impair or affect the validity of the designation.

LIMITATION ON LIENS

     Under the terms of the indenture, we shall not, and shall not permit any of
our restricted subsidiaries to, incur any lien upon any properties, including
capital stock, without effectively providing that the outstanding debt
securities shall be secured equally and ratably with, or prior to, that
indebtedness, so long as that indebtedness shall be so secured. The above
restriction on liens will not, however, apply to:

          (1) (a) liens securing indebtedness incurred to finance the
     exploration, drilling, development, construction or purchase of or by, or
     repairs, improvements or additions to, property or assets, which liens may
     include liens on the capital stock of a restricted subsidiary; or

          (b) liens incurred by any restricted subsidiary that does not own,
     directly or indirectly, at the time of the original incurrence of the lien
     under this clause (b) any operating properties or assets securing
     indebtedness incurred to finance the exploration, drilling, development,
     construction or purchase of or by or repairs, improvements or additions to,
     property or assets of any restricted subsidiary that does not, directly or
     indirectly, own any operating properties or assets at the time of the
     original incurrence of the lien, which liens may include liens on the
     capital stock of one or more restricted subsidiaries that do not, directly
     or indirectly, own any operating properties or assets at the time of the
     original incurrence of the lien, provided, however, that the indebtedness
     secured by the lien may not be issued more than 365 days after the later of
     the exploration, drilling, development, completion of construction,
     purchase, repair, improvement, addition or commencement of full commercial
     operation of the property or assets being so financed;

          (2) liens existing on the date of issuance of a series of debt
     securities, other than liens relating to indebtedness or other obligations
     being repaid or liens that are otherwise extinguished with the proceeds of
     any offering of debt securities pursuant to the indenture;

                                        26
<PAGE>

          (3) liens on property, assets or shares of stock of a person at the
     time that person becomes a subsidiary of ours; provided, however, that the
     lien may not extend to any other property or assets owned by us or any of
     its restricted subsidiaries;

          (4) liens on property or assets existing at the time that we or one of
     our subsidiaries acquires the property or asset, including any acquisition
     by means of a merger or consolidation with or into we or one of our
     subsidiaries; provided, however, that the liens are not incurred in
     connection with, or in contemplation of, that merger or consolidation and
     provided, further, that the lien may not extend to any other property or
     asset owned by us or any of our restricted subsidiaries;

          (5) liens securing indebtedness or other obligations of one of our
     subsidiaries that is owing to us or any of our restricted subsidiaries, or
     liens securing our indebtedness or other obligations that are owing to one
     of our subsidiaries;

          (6) liens incurred on assets that are the subject of a capitalized
     lease obligation to which we or any of our subsidiaries is a party, which
     shall include liens on the stock or other ownership interest in one or more
     of our restricted subsidiaries, leasing assets;

          (7) liens to secure any refinancing, refunding, extension, renewal or
     replacement, or successive refinancings, refundings, extensions, renewals
     or replacements, as a whole, or in part, of any indebtedness secured by any
     lien referred to in clauses (1), (2), (3), (4) or (6) above; provided,
     however, that (a) the new lien shall be limited to all or part of the same
     property or assets that secured the original lien, plus repairs,
     improvements or additions to that property or assets and liens on the stock
     or other ownership interest in one or more restricted subsidiaries
     beneficially owning that property or assets, and (b) the amount of
     indebtedness secured by the lien is not increased, other than by an amount
     necessary to pay fees and expenses, including premiums, related to the
     refinancing, refunding, extension, renewal or replacement of the
     indebtedness; and

          (8) liens by which the debt securities are secured equally and ratably
     with other indebtedness pursuant to this covenant.

     However, we and any of our restricted subsidiaries may incur other liens to
secure indebtedness as long as the sum of:

     - the lesser of (1) the amount of outstanding indebtedness secured by liens
       incurred pursuant to this provision and (2) the fair market value of the
       property securing that item of indebtedness; plus

     - the attributable debt with respect to all sale/leaseback transactions
       entered into pursuant to clause (1) under the heading "Limitation on
       Liens" and described in the indenture under the covenant "Limitation on
       Sale/Leaseback Transactions";

does not exceed 15% of consolidated net tangible assets as determined based on
our consolidated balance sheet as of the end of the most recent fiscal quarter
for which financial statements are available.

MODIFICATION AND WAIVER

     We may amend or supplement the indenture if the holders of a majority in
principal amount of the notes consent to it. Without the consent of the holder
of each note affected, however, no modification may:

     - reduce the amount of notes whose holders must consent to an amendment,
       supplement or waiver;

     - reduce the rate of interest or change the time for payment of interest on
       the notes;

     - reduce the issue price of the notes or change its stated maturity;

     - make any change in any repurchase right to the detriment of the holder;

     - make payments on the notes payable in currency or consideration other
       than as originally stated in the notes;

                                        27
<PAGE>

     - impair the holder's right to receive payment of principal and interest on
       the notes or to institute suit for the enforcement of any payment on the
       notes;

     - make any change in the percentage of principal amount of notes necessary
       to waive compliance with some provisions of the indenture or to make any
       change in this provision for modification; or

     - waive a continuing default or event of default regarding any payment on
       the notes.

     We may amend or supplement the indenture or waive any provision of it
without the consent of any holders of notes in some circumstances, including:

     - to cure any ambiguity, omission, defect or inconsistency;

     - to provide for the assumption of our obligations under the indenture by a
       successor upon any merger, consolidation or asset transfer permitted
       under the indenture;

     - to provide for uncertificated notes in addition to or in place of
       certificated notes or to provide for bearer notes;

     - to provide any security for or guarantees of the notes;

     - to comply with any requirement to effect or maintain the qualification of
       the indenture under the Trust Indenture Act of 1939, as amended;

     - to add covenants that would benefit the holders of notes or to surrender
       any rights we have under the indenture; or

     - to make any change that does not adversely affect the rights of any
       holder of the notes, including, without limitation, changing any payment
       record dates as necessary to conform to the then current market practice.

     The holders of a majority in principal amount of the outstanding notes may
waive any existing or past default or event of default. Those holders may not,
however, waive any default or event of default in any payment of principal or
interest on any note or compliance with a provision that cannot be amended or
supplemented without the consent of each holder affected.

REGISTRATION RIGHTS

     We entered into a registration rights agreement with Deutsche Bank. In the
registration rights agreement, we agreed, for the benefit of the holders of the
notes and the shares of our common stock issuable upon conversion of the notes
(together, the "Registrable Securities") that we would, at our expense:

     - file with the SEC, within 100 days after the date the notes were
       originally issued, a shelf registration statement covering resales of the
       Registrable Securities;

     - use our best efforts to cause the shelf registration statement to be
       declared effective under the Securities Act within 180 days after the
       date the notes were originally issued, subject to our right to postpone
       having the shelf registration statement declared effective for an
       additional 90 days in limited circumstances; and

     - use our best efforts to keep effective the shelf registration statement
       until two years after the date the notes are issued or, if earlier, until
       there are no outstanding Registrable Securities (the "Effectiveness
       Period").

     The registration statement of which this prospectus is a part was filed by
us in satisfaction of our obligation to do so pursuant to the registration
rights agreement.

     However, we may suspend the use of the prospectus that is part of the shelf
registration statement in connection with the sales of Registrable Securities
for a period not to exceed 30 days in any 90-day period

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<PAGE>

or 90 days in any 12-month period for reasons relating to the acquisition or
divestiture of assets, pending corporate developments, and similar events.

     Additional interest ("Liquidated Damages") will accrue on the notes, or on
the shares of our common stock into which any notes have been converted, if
following the effectiveness of the shelf registration statement either of the
following events (each a "Registration Default") occurs:

             (1) the shelf registration statement ceases to be effective before
        the earlier of two years from the effectiveness date, the sale of all
        securities registered under the shelf registration statement or the
        expiration of the applicable period under Rule 144(k) of the Securities
        Act; or

             (2) the shelf registration statement ceases to be reusable,
        including if the use of the prospectus is suspended for a period longer
        than the time permitted, in connection with the resale of the
        Registrable Securities due to specified circumstances, both subject to
        exceptions provided in the registration rights agreement.

     In that case, Liquidated Damages will accrue on the Registrable Securities
from and including the day following the Registration Default to but excluding
the day on which the Registration Default has been cured. Liquidated Damages
will be paid semi-annually in arrears, with the first semi-annual payment due on
the first interest payment date following the date of a Registration Default.
Liquidated Damages will accrue on the principal amount of the notes at a rate of
0.50% per annum of the principal amount of the notes from and including the date
on which any Registration Default shall occur to but excluding the date on which
all Registration Defaults have been cured. If a holder has converted some or all
of its notes into shares of our common stock, the holder will be entitled to
receive equivalent amounts based on the principal amount of the notes converted.

     Pursuant to our obligations in the registration rights agreement, we have
caused the shares of our common stock issuable upon conversion of the notes to
be listed on the New York Stock Exchange.

     This summary of provisions of the registration rights agreement may not
contain all the information important to you. You may request from us a copy of
the registration rights agreement.

CALCULATIONS IN RESPECT OF NOTES

     We will be responsible for making all calculations called for under the
notes. These calculations include, but are not limited to, determinations of the
market prices of the notes and shares of our common stock and accrued interest
payable on the notes. We will make all these calculations in good faith and,
absent manifest error, our calculations will be final and binding on holders of
notes. We will provide a schedule of our calculations to the trustee, and the
trustee is entitled to rely upon the accuracy of our calculations without
independent verification. The trustee will forward our calculations to any
holder of notes upon the request of that holder.

TRUSTEE

     Wilmington Trust Company will initially act as trustee, paying agent and
conversion agent for the notes. Wilmington Trust Company currently acts as
trustee under:

     - an indenture with Calpine and Calpine's subsidiary, Calpine Capital Trust
       III, dated as of August 9, 2000,

     - the indenture with respect to other series of securities issued under it,
       as supplemented by a supplemental indenture dated as of September 28,
       2000, and

     - indentures with Calpine's subsidiaries, Calpine Canada Energy Finance ULC
       and Calpine Canada Energy Finance II ULC, pursuant to which Calpine has
       guaranteed senior notes issued by these subsidiaries.

     A number of our series of debt securities are presently outstanding under
some of the above indentures. We may have in the future other relationships with
Wilmington Trust Company.
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<PAGE>

     If an event of default occurs and is continuing, the trustee will be
required to use the degree of care and skill of a prudent man under the
circumstances in the conduct of his own affairs. The trustee will become
obligated to exercise any of its powers under the indenture at the request of
any of the holders of any notes only after those holders have offered the
trustee indemnity reasonably satisfactory to it.

     If the trustee becomes one of our creditors, it will be subject to
limitations in the indenture on its rights to obtain payment of claims or to
realize on some property received for any claim, as security or otherwise. The
trustee is permitted to engage in other transactions with us. If, however, it
acquires any conflicting interest, it must eliminate that conflict or resign.

FORM, EXCHANGE, REGISTRATION AND TRANSFER

     We issued the notes in registered form, without interest coupons. We will
not charge a service charge for any registration of transfer or exchange of the
notes. We may, however, require the payment of any tax or other governmental
charge payable for that registration.

     Notes are exchangeable for other notes, for the same total principal amount
and for the same terms but in different authorized denominations in accordance
with the indenture. Holders may present notes for registration of transfer at
the office of the security registrar or any transfer agent we designate. The
security registrar or transfer agent will effect the transfer or exchange when
it is satisfied with the documents of title and identity of the person making
the request.

     We have appointed the trustee as security registrar for the notes. We may
at any time rescind that designation or approve a change in the location through
which any registrar acts. We are required to maintain an office or agency for
transfers and exchanges in each place of payment. We may at any time designate
additional registrars for the notes.

PAYMENT AND PAYING AGENTS

     Payments on the notes will be made in U.S. dollars at the office of the
trustee. At our option, however, we may make payments by check mailed to the
holder's registered address or, with respect to global notes, by wire transfer.
We will make interest payments to the person in whose name the notes are
registered at the close of business on the regular record date for the interest
payment.

     The trustee will be designated as our paying agent for payments on notes.
We may at any time designate additional paying agents or rescind the designation
of any paying agent or approve a change in the office through which any paying
agent acts.

     Subject to the requirements of any applicable abandoned property laws, the
trustee and paying agent shall pay to us upon written request any money held by
them for payments on the notes that remain unclaimed for two years after the
date upon which that payment has become due. After payment to us, holders
entitled to the money must look to us for payment. In that case, all liability
of the trustee or paying agent with respect to that money will cease.

NOTICES

     Except as otherwise described in this prospectus, notice to registered
holders of the notes will be given by mail to the holders at the addresses as
they appear in the security register. Notices will be deemed to have been given
on the date of mailing.

REPLACEMENT OF NOTES

     We will replace any notes that become mutilated, destroyed, stolen or lost
at the expense of the holder upon delivery to the trustee of the mutilated notes
or evidence of the loss, theft or destruction satisfactory to us and the
trustee. In the case of lost, stolen or destroyed notes, indemnity satisfactory
to the trustee and us may be required at the expense of the holder of the notes
before a replacement note will be issued.

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<PAGE>

PAYMENT OF STAMP AND OTHER TAXES

     We will pay all stamp and other duties, if any, which may be imposed by the
United States or any political subdivision thereof or taxing authority thereof
or therein with respect to the issuance of the notes. We will not be required to
make any payment with respect to any other tax, assessment or governmental
charge imposed by any government or any political subdivision thereof or taxing
authority thereof or therein.

BOOK-ENTRY SYSTEM

     The notes are represented by several global securities. Each global
security is deposited with, or on behalf of, DTC and registered in the name of a
nominee of DTC. Except under circumstances described below, the notes will not
be issued in definitive form.

     Upon the issuance of a global security, DTC will credit on its book-entry
registration and transfer system the accounts of persons designated by the
underwriter with the respective principal amounts of the notes represented by
the global security. Ownership of beneficial interests in a global security will
be limited to persons that have accounts with DTC or its nominee, known as
participants, or persons that may hold interests through participants. Ownership
of beneficial interests in a global security will be shown on, and the transfer
of that ownership will be effected only through, records maintained by DTC or
its nominee with respect to interests of persons other than participants. The
laws of some states require that some purchasers of securities take physical
delivery of the securities in definitive form. These limits and laws may impair
the ability to transfer beneficial interests in a global security.

     So long as DTC or its nominee is the registered owner of a global security,
DTC or its nominee, as the case may be, will be considered the sole owner or
holder of the notes represented by that global security for all purposes under
the indenture. Except as provided below, owners of beneficial interests in a
global security will not be entitled to have notes represented by that global
security registered in their names, will not receive or be entitled to receive
physical delivery of notes in definitive form and will not be considered the
owners or holders thereof under the indenture. Principal and interest payments,
if any, on notes registered in the name of DTC or its nominee will be made to
DTC or its nominee, as the case may be, as the registered owner of the relevant
global security. Neither Calpine, the trustee, any paying agent nor the
registrar for the notes will have any responsibility or liability for any aspect
of the records relating to, or payments made on account of beneficial interests
in, a global security or for maintaining, supervising or reviewing any records
relating to beneficial interests.

     We expect that DTC or its nominee, upon receipt of any payment of principal
or interest, if any, will credit immediately participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
the principal amount of the relevant global security as shown on the records of
DTC or its nominee. We also expect that payments by participants to owners of
beneficial interests in a global security held through these participants will
be governed by standing instructions and customary practices, as is the case
with securities held for the accounts of customers in bearer form or registered
in "street name," and will be the responsibility of the participants.

     If DTC is at any time unwilling or unable to continue as a depositary and a
successor depositary is not appointed by us within 90 days, we will issue notes
in definitive form in exchange for each entire global security. In addition, we
may at any time and in our sole discretion determine not to have notes
represented by global securities, in which case we will issue notes in
definitive form in exchange for each entire global security relating to the
notes. If we make this determination, an owner of a beneficial interest in a
global security will be entitled to physical delivery in definitive form of
notes represented by the global security equal in principal amount to the
owner's beneficial interest and to have the notes registered in its name. Notes
so issued in definitive form will be issued as registered notes in denominations
of $1,000 and multiples thereof, unless otherwise specified by us.

                                        31
<PAGE>

                          DESCRIPTION OF CAPITAL STOCK

     Our authorized capital stock consists of 1,000,000,000 shares of common
stock, $.001 par value, and 10,000,000 shares of preferred stock, $.001 par
value. The following summary is qualified in its entirety by the provisions of
our amended and restated certificate of incorporation and by-laws, which have
been incorporated by reference as exhibits to the registration statement of
which this prospectus constitutes a part.

COMMON STOCK

     The holders of our common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any of our outstanding preferred stock, the holders of our common
stock are entitled to receive ratably dividends, if any, as may be declared from
time to time by the board of directors out of legally available funds. See
"-- Dividend Policy." In the event of our liquidation, dissolution or winding
up, the holders of our common stock are entitled to share ratably in all assets
remaining after payment of liabilities, subject to prior liquidation rights of
our preferred stock, if any, then outstanding. Our common stock has no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to our common stock. Pursuant
to a rights agreement entered into in June of 1997, our shares of common stock
outstanding prior to the occurrence of events specified in the rights agreement
have preferred share purchase rights, which are set forth in more detail in the
rights agreement incorporated by reference as an exhibit to the registration
statement of which this prospectus constitutes a part. See "-- Anti-Takeover
Effects of Provisions of the Certificate of Incorporation, Bylaws, Rights Plan
and Delaware Law."

DIVIDEND POLICY

     We have not declared any cash dividends on our common stock during the past
two fiscal years. We do not anticipate paying any cash dividends on our common
stock in the foreseeable future because we intend to retain our earnings to
finance the expansion of our business and for general corporate purposes. In
addition, our ability to pay cash dividends is restricted under some of our
indentures and our other debt agreements. Future cash dividends, if any, will be
at the discretion of our board of directors and will depend upon, among other
things, our future operations and earnings, capital requirements, general
financial condition, contractual restrictions and other factors as the board of
directors may deem relevant.

PREFERRED STOCK

     As of June 18, 2002, there was one share of our preferred stock outstanding
Our board of directors has the authority, without further vote or action by the
stockholders, to issue from time to time up to 10,000,000 shares of our
preferred stock in one or more series, and to fix the rights, preferences,
privileges, qualifications, limitations and restrictions granted to or imposed
upon any wholly unissued shares of our undesignated preferred stock, including
without limitation dividend rights, if any, voting rights, if any, and
liquidation and conversion rights, if any. Our board of directors has the
authority to fix the number of shares constituting any series and the
designations of those series without any further vote or action by the
stockholders. Our board of directors, without stockholder approval, can issue
our preferred stock with voting and conversion rights which could adversely
affect the voting power of the holders of our common stock. The issuance of our
preferred stock may have the effect of delaying, deferring or preventing a
change in control of our company, or could delay or prevent a transaction that
might otherwise give our stockholders an opportunity to realize a premium over
the then prevailing market price of our common stock.

     Our board of directors has authorized the issuance of up to 1,000,000
shares of Series A Participating Preferred Stock, par value $.001 per share,
pursuant to a rights plan adopted by our board of directors on June 5, 1997,
which we amended on September 19, 2001. As of June 18, 2002, no shares of this
participating preferred stock were outstanding. A description of the rights plan
and the participating preferred stock is set forth under "-- Anti-Takeover
Effects of Provisions of the Certificate of Incorporation, Bylaws, Rights Plan
and Delaware Law" below.

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<PAGE>

     In connection with the business combination with Encal Energy Ltd., a
series of our preferred stock, consisting of one share, was designated as
special voting preferred stock, having a par value of $.001 and a liquidation
preference of $.001. Except as otherwise required by law or our certificate of
incorporation, the one share of our special voting preferred stock possesses a
number of votes for the election of directors and on all other matters submitted
to a vote of Calpine's stockholders equal to the number of outstanding
exchangeable shares issued by Calpine's wholly-owned subsidiary from time to
time and not owned by us or any entity controlled by us. The holders of our
common stock and the holder of the share of our special voting preferred stock
will vote together as a single class on all matters on which holders of our
common stock are eligible to vote. In the event of our liquidation, dissolution
or winding-up, all outstanding exchangeable shares will automatically be
exchanged for shares of our common stock, and the holder of our special voting
preferred stock will not be entitled to receive any assets available for
distribution to our stockholders. The holder of the share of special voting
preferred stock will not be entitled to receive dividends. The share of our
special voting preferred stock was issued to a Canadian trust company, as
trustee under a voting and exchange trust agreement among us, Calpine Canada
Holdings Ltd. and the trustee. In the event that the one share of our special
voting preferred stock has no votes attached to it because there are no
exchangeable shares outstanding not owned by us or an entity controlled by us,
the share of our special voting preferred stock will be canceled.

ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BYLAWS,
RIGHTS PLAN AND DELAWARE LAW

CERTIFICATE OF INCORPORATION AND BYLAWS

     Our amended and restated certificate of incorporation and bylaws provide
that our board of directors is classified into three classes of directors
serving staggered, three-year terms. The certificate of incorporation also
provides that directors may be removed only by the affirmative vote of the
holders of two-thirds of the shares of our capital stock entitled to vote. Any
vacancy on the board of directors may be filled only by vote of the majority of
directors then in office. Further, the certificate of incorporation provides
that some business combinations require the affirmative vote of the holders of
two-thirds of the shares of our capital stock entitled to vote, voting together
as a single class. The certificate of incorporation also provides that all
stockholder actions must be effected at a duly called meeting and not by a
consent in writing. Our certificate of incorporation provides that a special
meeting of stockholders may be called only by the chairman of our board of
directors or by the chairman or secretary upon the written request of a majority
of the total number of directors we would have if there were no vacancies on our
board of directors. These provisions of the certificate of incorporation and
bylaws could discourage potential acquisition proposals and could delay or
prevent a change in control of our company. These provisions are intended to
enhance the likelihood of continuity and stability in the composition of the
board of directors and in the policies formulated by the board of directors and
to discourage some types of transactions that may involve an actual or
threatened change of control of our company. These provisions are designed to
reduce our vulnerability to an unsolicited acquisition proposal. The provisions
also are intended to discourage tactics that may be used in proxy fights.
However, these provisions could have the effect of discouraging others from
making tender offers for our shares and, as a consequence, they also may inhibit
fluctuations in the market price of our shares that could result from actual or
rumored takeover attempts. These provisions also may have the effect of
preventing changes in our management.

RIGHTS PLAN

     On June 5, 1997, we adopted a stockholders' rights plan to strengthen our
ability to protect our stockholders. The rights plan was amended on September
19, 2001. The rights plan is designed to protect against abusive or coercive
takeover tactics that are not in the best interests of Calpine or its
stockholders. To implement the rights plan, we declared a dividend of one
preferred share purchase right for each outstanding share of our common stock
held on record as of June 18, 1997, and directed the issuance of one preferred
share purchase right with respect to each share of our common stock that shall
become outstanding thereafter until the rights become exercisable or they expire
as described below. Each right

                                        33
<PAGE>

initially represents a contingent right to purchase, under specific
circumstances, one one-thousandth of a share, called a "unit," of our Series A
Participating Preferred Stock, par value $.001 per share, at a price of $140.00
per unit, subject to adjustment. The rights will become exercisable and trade
independently from our common stock upon the public announcement of the
acquisition by a person or group of 15% or more of our common stock, or ten days
after commencement of a tender or exchange offer that would result in the
acquisition of 15% or more of our common stock. Each unit purchased upon
exercise of the rights will be entitled to a dividend equal to any dividend
declared per share of common stock and will have one vote, voting together with
the common stock. In the event of our liquidation, each share of the
participating preferred stock will be entitled to any payment made per share of
common stock.

     If we are acquired in a merger or other business combination transaction
after a person or group has acquired 15% or more of our common stock, each right
will entitle its holder to purchase at the right's exercise price a number of
the acquiring company's shares of common stock having a market value of twice
the right's exercise price. In addition, if a person or group acquires 15% or
more of our common stock, each right will entitle its holder, other than the
acquiring person or group, to purchase, at the right's exercise price, a number
of fractional shares of our participating preferred stock or shares of our
common stock having a market value of twice the right's exercise price.

     The rights remain exercisable for up to 90 days following a triggering
event, such as a person acquiring 15% or more of our common stock. The rights
expire on June 18, 2007, unless redeemed earlier by us. We can redeem the rights
at a price of $.01 per right at any time before the rights become exercisable,
and thereafter only in limited circumstances.

DELAWARE ANTI-TAKEOVER STATUTE

     Calpine is subject to Section 203 of the Delaware General Corporation Law
("Section 203"), which, subject to exceptions, prohibits a Delaware corporation
from engaging in any business combination with any interested stockholder for a
period of three years following the date that the stockholder became an
interested stockholder, unless: (1) prior to that date, the board of directors
of the corporation approved either the business combination or the transaction
that resulted in the stockholder becoming an interested stockholder; (2) upon
consummation of the transaction that resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned (a) by persons who are directors and also
officers and (b) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer; or (3) on or subsequent to
that date, the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding voting
stock that is not owned by the interested stockholder.

     Section 203 defines the term business combination to include: (1) any
merger or consolidation involving the corporation or any of its direct or
indirect majority-owned subsidiaries and the interested stockholder; (2) any
sale, transfer, pledge or other disposition of 10% or more of the assets of the
corporation or any of its direct or indirect majority-owned subsidiaries
involving the interested stockholder; (3) subject to exceptions, any transaction
that results in the issuance or transfer by the corporation of any stock of the
corporation or any of its direct or indirect majority-owned subsidiaries of any
stock of the corporation or that subsidiary to the interested stockholder; (4)
any transaction involving the corporation or any of its direct or indirect
majority-owned subsidiaries that has the effect of increasing the proportionate
share of the stock of any class or series of the corporation or that subsidiary
beneficially owned by the interested stockholder; or (5) the receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation or
any of its direct of indirect majority-owned subsidiaries. In general, Section
203 defines an interested stockholder as any entity or person beneficially
owning 15% or more of the outstanding voting stock of the corporation and any
entity or person affiliated with or controlling or controlled by that entity or
person.

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             MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES

     The following is a summary of some of the material United States federal
income tax consequences of the ownership and disposition of the notes and shares
of common stock into which the notes are convertible (the "securities"). Unless
otherwise stated, this summary deals only with U.S. holders that hold the notes
and any shares of common stock into which the notes are converted as capital
assets.

     As used herein, "U.S. holders" are any beneficial owners of the securities,
that are, for United States federal income tax purposes, (1) citizens or
residents of the United States, (2) corporations created or organized in, or
under the laws of, the United States, any state thereof or the District of
Columbia, (3) estates, the income of which is subject to United States federal
income taxation regardless of its source, or (4) trusts if (A) a court within
the United States is able to exercise primary supervision over the
administration of the trust and (B) one or more United States persons have the
authority to control all substantial decisions of the trust. In addition, some
trusts in existence on August 20, 1996 and treated as a U.S. holder prior to
such date may also be treated as U.S. holders. As used herein, "non-U.S.
holders" are beneficial owners of the securities, other than partnerships, that
are not U.S. holders for United States federal income tax purposes. If a
partnership, including for this purpose any entity treated as a partnership for
United States federal tax purposes, is a beneficial owner of the securities, the
treatment of a partner in the partnership will generally depend upon the status
of the partner and upon the activities of the partnership. Partnerships and
partners in such partnerships should consult their tax advisors about the United
States federal income tax consequences of owning and disposing of the
securities.

     This summary does not deal with special classes of holders such as banks,
thrifts, real estate investment trusts, regulated investment companies,
insurance companies, dealers in securities or currencies, or tax-exempt
investors and does not discuss securities held as part of a hedge, straddle,
"synthetic security" or other integrated transaction. This summary also does not
address the tax consequences to (1) persons that have a functional currency
other than the U.S. dollar, (2) some United States expatriates or (3)
shareholders, partners or beneficiaries of a holder of the securities. Further,
it does not include any description of any alternative minimum tax consequences
or the tax laws of any state or local government or of any foreign government
that may be applicable to the securities. This summary is based on the Internal
Revenue Code of 1986, as amended, the Treasury regulations promulgated
thereunder and administrative and judicial interpretations thereof, all as of
the date hereof, and all of which are subject to change or differing
interpretations, possibly on a retroactive basis.

     You should consult with your own tax advisor regarding the federal, state,
local and foreign income, franchise, personal property and any other tax
consequences of the ownership and disposition of the securities.

TAXATION OF U.S. HOLDERS

THE NOTES

     This subsection describes the material United States federal income tax
consequences of owning, converting and disposing of the notes. The discussion
regarding United States federal income tax laws assumes that transfers of the
notes and payments thereon will be made in accordance with the applicable
indenture and deposit agreement.

Interest Income

     Payments of interest on the notes generally will be taxable to a U.S.
holder as ordinary interest income at the time such payments are accrued or
received (in accordance with the holder's regular method of tax accounting).

Notes Purchased at a Market Discount

     A holder will be considered to have purchased a note at a "market discount"
if the holder's adjusted tax basis in the note is less than its stated
redemption price at maturity unless such market discount is a

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<PAGE>

de minimis amount (generally up to 1/4 of 1 percent of the stated redemption
price on the purchase date multiplied by the number of complete years to
maturity remaining as of such date). In general, any partial payment of
principal on, or gain recognized on the maturity or disposition of, the note
will be treated as ordinary income to the extent that such gain does not exceed
the accrued market discount on the underlying debenture. Alternatively, a holder
of a note may elect to include market discount in income currently over the life
of the note. Such an election applies to all debt instruments with market
discount acquired by the electing holder on or after the first day of the first
taxable year to which the election applies and may not be revoked without the
consent of the Internal Revenue Service.

     Market discount accrues on a straight-line basis unless the holder elects
to accrue such discount on a constant yield to maturity basis. Such an election
is applicable only to the debt security with respect to which it is made and is
irrevocable. A holder of a note that does not elect to include market discount
in income currently generally will be required to defer deductions for interest
on borrowings allocable to such Note in an amount not exceeding the accrued
market discount on such Note until the maturity or disposition of the Note.

Notes Purchased at a Premium

     A holder will be considered to have purchased a note at a premium if the
holder's adjusted tax basis in the note immediately after the purchase is
greater than the amount payable at maturity. A holder may elect to treat such
premium as "amortizable bond premium," in which case the amount of interest
required to be included in the holder's income each year with respect to the
interest on the note will be reduced by the amount of the amortizable bond
premium allocable (based on the note's yield to maturity) to such year. Any
election to amortize bond premium is applicable to all bonds (other than bonds
the interest on which is excludible from gross income) held by the holder at the
beginning of the first taxable year to which the election applies or thereafter
acquired by the holder, and may not be revoked without the consent of the
Internal Revenue Service.

Conversion of Notes into Common Stock

     A U.S. holder will generally not recognize gain or loss upon the conversion
of a note into common stock (except with respect to cash received in lieu of a
fractional share). A U.S. holder's tax basis in the common stock received on
conversion of a note will be the same as the U.S. holder's adjusted tax basis in
the note at the time of conversion (exclusive of any tax basis allocable to a
fractional share). The holding period for the common stock received on
conversion will include the holding period of the converted note. Cash received
in lieu of a fractional share upon conversion of a note will be treated as a
payment in exchange for the fractional share. Accordingly, if the common stock
is a capital asset in the hands of the U.S. holder, the receipt of cash in lieu
of a fractional share will generally result in capital gain or loss, if any,
measured by the difference between the cash received for the fractional share
and the U.S. holder's tax basis in the fractional share.

Adjustment of Conversion Rate

     If at any time we make a distribution of property to shareholders that
would be taxable as a dividend for United States federal income tax purposes
(for example, distributions of evidences of indebtedness or assets, but
generally not stock dividends or rights to subscribe for common stock) and,
pursuant to the anti-dilution provisions of the indenture, the conversion rate
of the notes is increased, such increase may be deemed to be the payment of a
taxable dividend to a U.S. holder of the notes to the extent of our current and
accumulated earnings and profits. If the conversion rate is increased at our
discretion or in other circumstances, such increase also may be deemed to be the
payment of a taxable dividend to the U.S. holder.

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<PAGE>

Repurchase for Common Stock

     A U.S. holder of the notes generally should not recognize gain or loss upon
a repurchase of the notes for our common stock pursuant to the repurchase right
described in "Description of Notes -- Repurchase Right" and "Description of
Notes -- Change in Control," except that ordinary income will be recognized to
the extent that a portion of the common stock is determined to constitute a
payment in respect of interest on the notes. A U.S. holder's basis in the common
stock received on repurchase of a note will be the same as the U.S. holder's tax
basis in the note at the time of repurchase (exclusive of any tax basis
allocable to a fractional share) and the holding period for the common stock
received on conversion will include the holding period of the repurchased note,
except that the portion, if any, of common stock received that constitutes
payment in respect of interest will have a tax basis equal to its fair market
value at the time of the repurchase and a new holding period commencing at the
time of the repurchase. Cash received in lieu of a fractional share upon
repurchase of a note will be treated as a payment in exchange for the fractional
share. Accordingly, if the common stock is a capital asset in the hands of the
U.S. holder, the receipt of cash in lieu of a fractional share will generally
result in capital gain or loss, if any, measured by the difference between the
cash received for the fractional share and the U.S. holder's tax basis in the
fractional share.

Sale, Exchange or Cash Repurchase of Notes

     A U.S. holder will generally recognize taxable gain or loss equal to the
difference between the amount realized on the sale, exchange, repurchase for
cash or other disposition of the note and the holder's adjusted tax basis in
such note, except that ordinary income will be recognized to the extent that a
portion of the amount realized is attributable to market discount or accrued
interest not previously included in income. A holder's adjusted tax basis in the
note generally will be the initial purchase price paid therefore. In the case of
a holder other than a corporation, preferential tax rates may apply to gain
recognized on the sale of a note if such holder's holding period for such note
exceeds one year.

     To the extent the selling price is less than the holder's adjusted tax
basis, the holder will recognize a capital loss. Subject to limited exceptions,
capital losses cannot be applied to offset ordinary income for United States
federal income tax purposes.

Information Reporting and Backup Withholding Tax

     In general, information reporting requirements will apply to payments of
principal and interest on the notes and payments of the proceeds of the sale of
the notes, and a backup withholding tax may apply to such payments if the holder
fails to comply with identification requirements. Backup withholding is
currently imposed at a rate of 30%, which rate is scheduled to be reduced in
future years. Any amounts withheld under the backup withholding rules from a
payment to a holder will be allowed as a credit against such holder's United
States federal income tax and may entitle the holder to a refund, provided that
the required information is furnished to the Internal Revenue Service.

THE COMMON STOCK

Dividends

     The amount of any distribution we make in respect of the common stock will
be equal to the amount of cash and the fair market value, on the date of
distribution, of any property distributed. Generally, distributions will be
treated as a dividend, subject to tax as ordinary income, to the extent of our
current or accumulated earnings and profits, then as a tax-free return of
capital to the extent of a holder's tax basis in the common stock and thereafter
as gain from the sale or exchange of such common stock as described below.

     In general, a dividend distribution to a corporate holder will qualify for
the 70% dividends-received deduction. The dividends-received deduction is
subject to a specific holding period, taxable income, and other limitations.

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<PAGE>

Sale or Exchange of Common Stock

     Upon the sale or exchange of common stock, a holder generally will
recognize capital gain or loss equal to the difference between (1) the amount of
cash and the fair market value of any property received upon the sale or
exchange and (2) such holder's adjusted tax basis in the common stock. In the
case of a holder other than a corporation, preferential tax rates may apply to
such gain if the holder's holding period for the common stock exceeds one year.

Information Reporting and Backup Withholding Tax

     In general, information reporting requirements will apply to payments of
dividends on common stock and payments of the proceeds of the sale of common
stock, and a backup withholding tax may apply to such payments if the holder
fails to comply with identification requirements. Backup withholding is
currently imposed at a rate of 30%, which rate is scheduled to be reduced in
future years. Any amounts withheld under the backup withholding rules from a
payment to a holder will be allowed as a credit against such holder's United
States federal income tax and may entitle the holder to a refund, provided that
the required information is furnished to the Internal Revenue Service.

TAXATION OF NON-U.S. HOLDERS

THE NOTES

     The rules governing United States federal income taxation of a non-U.S.
holder of notes are complex and no attempt will be made herein to provide more
than a summary of such rules. Non-U.S. holders should consult with their own tax
advisors to determine the effect of federal, state, local and foreign income tax
laws, as well as treaties, with regard to an investment in the notes, including
any reporting requirements.

Interest Income

     Generally, interest income of a non-U.S. holder that is not effectively
connected with a United States trade or business is subject to a withholding tax
at a 30% rate (or, if applicable, a lower tax rate specified by a treaty).
However, interest income earned on a note by a non-U.S. holder will qualify for
the "portfolio interest" exemption and therefore will not be subject to United
States federal income tax or withholding tax, provided that such interest income
is not effectively connected with a United States trade or business of the
non-U.S. holder and provided that (1) the non-U.S. holder does not actually or
constructively own 10% of more of the total combined voting power of all classes
of our stock entitled to vote; (2) the non-U.S. holder is not a controlled
foreign corporation that is related to us through stock ownership; (3) the
non-U.S. holder is not a bank which acquired the note in consideration for an
extension of credit made pursuant to a loan agreement entered into in the
ordinary course of business; and (4) either (a) the non-U.S. holder certifies to
the payor or the payor's agent, under penalties of perjury, that it is not a
United States person and provides its name, address, and other information on a
properly executed Internal Revenue Service Form W-8BEN or a suitable substitute
form or (b) a securities clearing organization, bank or other financial
institution that holds customer securities in the ordinary course of its trade
or business and holds the notes in such capacity, certifies to the payor or the
payor's agent, under penalties of perjury, that such a statement has been
received from the beneficial owner by it or by a financial institution between
it and the beneficial owner, and furnishes the payor or the payor's agent with a
copy thereof. The applicable United States Treasury regulations also provide
alternative methods for satisfying the certification requirements of clause (4),
above. If a non-U.S. holder holds the note through foreign intermediaries or
partnerships, such holder and the foreign intermediary or partnership may be
required to satisfy certification requirements under applicable United States
Treasury regulations.

     Except to the extent that an applicable income tax treaty otherwise
provides, a non-U.S. holder generally will be taxed with respect to interest in
the same manner as a U.S. holder if the interest is effectively connected with a
United States trade or business of the non-U.S. holder. Effectively connected

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<PAGE>

interest income received or accrued by a corporate non-U.S. holder may also,
under some circumstances, be subject to an additional "branch profits" tax at a
30% rate (or, if applicable, at a lower tax rate specified by an applicable
income tax treaty). Even though such effectively connected income is subject to
income tax, and may be subject to the branch profits tax, it is not subject to
withholding tax if the non-U.S. holder delivers a properly executed Internal
Revenue Service Form W-8ECI (or successor form) to the payor or the payor's
agent.

Conversion of Notes into Common Stock

     A non-U.S. holder's conversion of a note into common stock will generally
not be a taxable event except with respect to cash received in lieu of a
fractional share, which will be taxed as described below under "Sale, Exchange
or Cash Repurchase of Notes."

Adjustment of Conversion Rate

     Some adjustments in the conversion rate of the notes may be treated as a
taxable dividend to a non-U.S. holder. See "Taxation of U.S. Holders -- The
Notes -- Adjustment of Conversion Rate" above and "Taxation of Non U.S.
Holders -- The Common Stock -- Dividends" below.

Repurchase for Common Stock

     A non-U.S. holder of the notes generally should not recognize gain or loss
upon a repurchase of the notes for our common stock, except that ordinary income
will be recognized to the extent that a portion of the common stock is
determined to constitute a payment in respect of interest on the notes. Such
ordinary income will be taxable as described under "Interest Income" above.

Sale, Exchange or Cash Repurchase of Notes

     A non-U.S. holder generally will not be subject to United States federal
income tax or withholding tax on any gain realized on the sale, exchange,
repurchase for cash or other disposition of a note unless (1) the gain is
effectively connected with a United States trade or business of the non-U.S.
holder, (2) in the case of a non-U.S. holder who is an individual, such holder
is present in the United States for a period or periods aggregating 183 days or
more during the taxable year of the disposition, and either (a) such holder has
a "tax home" in the United States or (b) the disposition is attributable to an
office or other fixed place of business maintained by such holder in the United
States, (3) the non-U.S. holder is subject to tax pursuant to the provisions of
the Internal Revenue Code applicable to some United States expatriates, or (4)
in the event that we are characterized as a United States real property holding
corporation and the non-U.S. holder does not qualify for exemptions (see
discussion below under "Foreign Investment in Real Property Tax Act").

Information Reporting and Backup Withholding Tax

     United States backup withholding tax will not apply to payments on the
notes to a non-U.S. holder if the statement described in clause (4) of "Interest
Income" is duly provided by such holder, provided that the payor does not have
actual knowledge that the holder is a United States person. Information
reporting requirements may apply with respect to interest payments on the notes,
in which event the amount of interest paid and tax withheld (if any) with
respect to each non-U.S. holder will be reported annually to the Internal
Revenue Service. Information reporting requirements and backup withholding tax
will not apply to any payment of the proceeds of the sale of notes effected
outside the United States by a foreign office of a "broker" as defined in
applicable Treasury regulations (absent actual knowledge that the payee is a
United States person), unless such broker (1) is a United States person as
defined in the Internal Revenue Code, (2) is a foreign person that derives 50%
or more of its gross income for some periods from the conduct of a trade or
business in the United States, (3) is a controlled foreign corporation for
United States federal income tax purposes or (4) is a foreign partnership with
U.S. connections. Payment of the proceeds of any such sale effected outside the
United States by a foreign office of any broker that is

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<PAGE>

described in the preceding sentence may be subject to backup withholding tax and
information reporting requirements, unless such broker has documentary evidence
in its records that the beneficial owner is a non-U.S. holder and other
conditions are met, or the beneficial owner otherwise establishes an exemption.
Payment of the proceeds of any such sale to or through the United States office
of a broker is subject to information reporting and backup withholding
requirements unless the beneficial owner of the notes provides the statement
described in clause (4) of "Interest Income" or otherwise establishes an
exemption.

THE COMMON STOCK

     The rules governing United States federal income taxation of a non-U.S.
holder of common stock are complex and no attempt will be made herein to provide
more than a summary of such rules. Non-U.S. holders should consult with their
own tax advisors to determine the effect of federal, state, local and foreign
income tax laws, as well as treaties, with regard to an investment in the common
stock, including any reporting requirements.

Dividends

     Distributions we make with respect to the common stock that are treated as
dividends paid, as described above under "U.S. Holders of common stock --
Dividends" to a non-U.S. holder (excluding dividends that are effectively
connected with the conduct of a United States trade or business by such holder
and are taxable as described below) will be subject to United States federal
withholding tax at a 30% rate (or a lower rate provided under an applicable
income tax treaty). Except to the extent that an applicable income tax treaty
otherwise provides, a non-U.S. holder will be taxed in the same manner as a U.S.
holder on dividends paid (or deemed paid) that are effectively connected with
the conduct of a United States trade or business by the non-U.S. holder. If such
non-U.S. holder is a foreign corporation, it may also be subject to a United
States branch profits tax on such effectively connected income at a 30% rate (or
such lower rate as may be specified by an applicable income tax treaty). Even
though such effectively connected dividends are subject to income tax and may be
subject to the branch profits tax, they will not be subject to United States
federal withholding tax if the holder delivers a properly executed Internal
Revenue Service Form W-8ECI (or successor form) to the payor or the payor's
agent.

     A non-U.S. holder who wishes to claim the benefit of an applicable income
tax treaty is required to satisfy certification and other requirements. If you
are eligible for a reduced rate of United States withholding tax pursuant to an
income tax treaty, you may obtain a refund of any excess amounts withheld by
filing an appropriate claim for refund with the Internal Revenue Service.

Sale or Exchange of Common Stock

     A non-U.S. holder generally will not be subject to United States federal
income tax or withholding tax on the sale or exchange of common stock unless (1)
the gain is effectively connected with a United States trade or business of the
non-U.S. holder, (2) in the case of a non-U.S. holder who is an individual, such
holder is present in the United States for a period or periods aggregating 183
days or more during the taxable year of the disposition, and either (A) such
holder has a "tax home" in the United States or (B) the disposition is
attributable to an office or other fixed place of business maintained by such
holder in the United States, (3) the non-U.S. holder is subject to tax pursuant
to the provisions of the Internal Revenue Code applicable to some United States
expatriates or (4) in the event that we are characterized as a United States
real property holding corporation and the non-U.S. holder does not qualify for
exemptions (see discussion below under "Foreign Investment in Real Property Tax
Act").

     If an individual non-U.S. holder falls under clause (1) above, such
individual generally will be taxed on the net gain derived from a sale in the
same manner as a U.S. holder. If an individual non-U.S. holder falls under
clause (2) above, such individual generally will be subject to a flat 30% tax on
the gain derived from a sale, which may be offset by United States capital
losses (notwithstanding the fact that such individual is not considered a
resident of the United States). Individual non-U.S. holders who have spent (or
expect to spend) 183 days or more in the United States in the taxable year in
which they contemplate

                                        40
<PAGE>

a sale of common stock are urged to consult their tax advisors as to the tax
consequences of such sale. If a non-U.S. holder that is a foreign corporation
falls under clause (1), it generally will be taxed on the net gain derived from
a sale in the same manner as a U.S. holder and, in addition, may be subject to
the branch profits tax on such effectively connected income at a 30% rate (or
such lower rate as may be specified by an applicable income tax treaty).

Information Reporting and Backup Withholding Tax

     United States information reporting requirements and backup withholding tax
will not apply to any payment of the proceeds of the sale of common stock
effected outside the United States by a foreign office of a "broker" as defined
in applicable Treasury regulations, unless such broker (1) is a United States
person as defined in the Internal Revenue Code, (2) is a foreign person that
derives 50% or more of its gross income for some periods from the conduct of a
trade or business in the United States, (3) is a controlled foreign corporation
for United States federal income tax purposes or (4) is a foreign partnership
with U.S. connections. Payment of the proceeds of any such sale effected outside
the United States by a foreign office of any broker that is described in the
preceding sentence may be subject to backup withholding tax and information
reporting requirements, unless such broker has documentary evidence in its
records that the beneficial owner is a non-U.S. holder and other conditions are
met, or the beneficial owner otherwise establishes an exemption. Dividends on
common stock held by a non-U.S. holder will be subject to information reporting
and may be subject to backup withholding requirements unless certification
requirements are satisfied.

FOREIGN INVESTMENT IN REAL PROPERTY TAX ACT

     Under the Foreign Investment in Real Property Tax Act, any person who
acquires a "United States real property interest" (as described below) from a
foreign person must deduct and withhold a tax equal to 10% of the amount
realized by the foreign transferor. In addition, a foreign person who disposes
of a United States real property interest generally is required to recognize
gain or loss that is subject to United States federal income tax. A "United
States real property interest" generally includes any interest (other than an
interest solely as a creditor) in a United States corporation unless it is
established under specified procedures that the corporation is not (and was not
for the prior five-year period) a "United States real property holding
corporation." We believe it is likely that we are a United States real property
holding corporation and we can give no assurance that we will not continue to be
a United States real property holding corporation in the future. However, so
long as our common stock is regularly traded on an established securities
market, an exemption should apply to the notes and the common stock except (1)
in the case of notes, if the notes are or become regularly traded, with respect
to a non-U.S. holder that owns more than 5% of the notes, and (2) otherwise, and
in the case of the common stock, with respect to a non-U.S. holder whose
beneficial and/or constructive ownership of common stock exceeds 5% of the total
fair market value of the common stock.

     Any investor that may approach or exceed the 5% ownership threshold
discussed above, either alone or in conjunction with related persons, should
consult its own tax advisor concerning the United States tax consequences that
may result. A non-U.S. holder who sells or otherwise disposes of a note or
common stock may be required to inform its transferee whether such note or
common stock constitutes a United States real property interest.

     THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED
FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S
PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO
THE TAX CONSEQUENCES TO THEM OF THE OWNERSHIP AND DISPOSITION OF THE SECURITIES,
INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS
AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL OR OTHER TAX LAWS.

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                                 LEGAL MATTERS

     The validity of the notes and any shares of common stock issuable upon
conversion of the notes offered hereby will be passed upon for us by Covington &
Burling, New York, New York.

                              INDEPENDENT AUDITORS

     Our audited financial statements incorporated by reference in this
prospectus and elsewhere in the registration statement of which this prospectus
is a part have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included in this prospectus in reliance upon the authority of said firm as
experts in giving said reports. The report of Ernst and Young LLP, independent
chartered accountants, with respect to the audited financial statements of Encal
Energy, Ltd., which is incorporated in this prospectus by reference to our
Annual Report on Form 10-K for the year ended December 31, 2001, is included
herein in reliance upon the authority of said firm as experts in giving said
report.

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