Calpine Corp. & Encal Energy Ltd. - s. 3.1

WHEREAS Calpine Corporation ("Calpine") and Encal Energy Ltd. ("Encal") have jointly applied to the Director (the "Commission") of the Ontario Securities Commission (the "Director") for an exemption from the following requirements of Ontario Securities Commission Rule 54-501 Prospectus Disclosure in Certain Information Circulars ("Rule 54-501") as they would otherwise relate to the information circular (the "Proxy Circular") to be delivered by Encal to its securityholders in connection with a proposed combination (the "Combination") of the businesses of Calpine and Encal, pursuant to the terms of a combination agreement (the "Combination Agreement") dated effective as of February 7, 2001 between Calpine and Encal, to be effected by a plan of arrangement (the "Arrangement") pursuant to Section 186 of the Business Corporations Act (Alberta) (the "ABCA"): (a) the requirement that certain financial information relating to Calpine and included in the Proxy Circular be reconciled to Canadian GAAP; and (b) the requirement that the Proxy Circular include the financial statements of Calpine Canada Holdings Ltd. ("Calpine Canada") that would be required in a prospectus of Calpine Canada;

AND WHEREAS Calpine and Encal have represented to the Director that:

Encal

1. Encal is a corporation organized and subsisting under the ABCA.

2. Encal's principal business is the acquisition of interests in crude oil and natural gas rights and the exploration for, development, production and marketing of crude oil and natural gas. Encal is one of Canada's top independent natural gas producers.

3. Encal's principal executive offices are located at 1800, 421 Seventh Avenue S.W., Calgary, Alberta, T2P 4K9.

4. The authorized capital of Encal consists of an unlimited number of common shares (the "Encal Common Shares"), an unlimited number of Class A preferred shares issuable in series and an unlimited number of Class B preferred shares issuable in series (collectively, the "Preferred Shares"). As of February 6, 2001, 109,857,279 Encal Common Shares were issued and outstanding and no Preferred Shares were issued and outstanding. As of February 6, 2001, an aggregate of 7,294,981 Encal Common Shares were reserved for issuance pursuant to outstanding Encal options granted under the stock option plan of Encal and, as at such date, no other Encal Common Shares were reserved for issuance pursuant to any outstanding rights or options and no Preferred Shares were reserved for issuance.

5. The Encal Common Shares are fully participating voting shares and are listed on The Toronto Stock Exchange and on the New York Stock Exchange.

6. Encal is a reporting issuer under the Act and is not in default of any of the requirements under the Act or the regulations thereunder and is a reporting issuer or the equivalent of a reporting issuer under the securities laws of each of British Columbia, Alberta, Saskatchewan, Manitoba, Quebec and Nova Scotia.

Calpine

7. Calpine is a corporation organized and subsisting under the laws of the State of Delaware.

8. Calpine is 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. Calpine has launched the largest power development program in North America focusing on combined-cycle, natural gas-fired generation, and is the world's largest producer of renewable geothermal energy.

9. Calpine's principal executive offices are located at 5th Floor, 50 West San Ferando Street, San Jose, California 95113.

10. The authorized capital stock of Calpine consists of 500,000,000 shares of common stock (the "Calpine Common Stock") (which term includes the related Calpine Common Stock purchase rights issued or issuable under the Rights Agreement dated as of June 5, 1997 (the "Calpine Rights Agreement") between Calpine and First Chicago Trust Company of New York, as Rights Agent), and 10,000,000 shares of preferred stock, issuable in series ("Calpine Preferred Stock") of which 500,000 shares have been designated Series A Participating Preferred Stock. As of February 1, 2001, no shares of Calpine Preferred Stock were issued or outstanding, 283,739,629 shares of Calpine Common Stock were issued and outstanding and no shares of Calpine Common Stock were held by Calpine in its treasury. As of February 1, 2001, (i) 35,138,595 shares of Calpine Common Stock were reserved or allocated for issuance upon the exercise of stock options then outstanding under Calpine's stock option plans and for future issuance of options under Calpine's stock option plans, (ii) 44,881,650 shares of Calpine Common Stock were reserved or allocated for issuance upon exchange or conversion of certain other convertible securities, and (iii) Calpine has in its authorized capital the number of shares of Calpine Preferred Stock required to be issued upon the exercise of the rights provided by the Calpine Rights Agreement in accordance with the terms and conditions thereof.

11. The shares of Calpine Common Stock are fully participating and voting and are currently traded on the New York Stock Exchange.

12. Calpine is subject to the rules and regulations of the United States Securities and Exchange Commission (the "SEC") and the informational requirements of the United States Securities Exchange Act of 1934 (the "Exchange Act"). Calpine is not a reporting issuer or the equivalent thereof in Ontario or any other Canadian jurisdiction and will not become a reporting issuer in any jurisdiction as a result of the Combination and Arrangement.

Calpine Canada

13. Calpine Canada is a newly established corporation incorporated under the laws of Alberta and is wholly owned by Calpine. Upon the completion of the Combination, it is intended that the Exchangeable Shares (as hereinafter defined) of Calpine Canada will be listed and posted for trading on The Toronto Stock Exchange.

14. Calpine Canada's registered office is located at 3700, 400 Third Avenue S.W., Calgary, Alberta, T2P 4H2.

15. Calpine Canada's authorized capital will consist of an unlimited number of common shares and an unlimited number of Exchangeable Shares.

16. All common shares of Calpine Canada will be held (as registered and beneficial owner) by Calpine or a subsidiary of Calpine, for as long as any outstanding Exchangeable Shares are owned by any person other than Calpine or any of Calpine's subsidiaries, except in cases where any person or group of persons acting jointly or in concert acquires Calpine Common Stock pursuant to any merger of Calpine pursuant to which Calpine is not the surviving corporation or acquires all or substantially all of Calpine's assets.

The Combination

17. Under the terms of the Combination, the holders ("Encal Shareholders") of Encal Common Shares (other than dissenting holders) will transfer each of the Encal Common Shares held by them to Calpine Canada in consideration for a fixed value of $12.00 per share, payable in the form of exchangeable shares ("Exchangeable Shares") of Calpine Canada. The number of Exchangeable Shares to be received for each Encal Common Share is to be determined in accordance with an exchange ratio described in the Combination Agreement (the "Exchange Ratio") based on the average trading price of the Calpine Common Stock for the ten consecutive trading days ending on the third trading day before the meeting of Encal Shareholders being held to approve the Arrangement. Each Exchangeable Share will entitle the holder to: (i) receive one share of Calpine Common Stock; (ii) receive dividends equivalent to any dividends paid on Calpine Common Stock; and (iii) vote indirectly through a trust arrangement described below at meetings of the holders of Calpine Common Stock ("Calpine Stockholders"). Upon completion of the Combination, Encal will be wholly-owned by Calpine Canada, and all of the former Encal Shareholders (other than dissenting holders) will hold Exchangeable Shares issued by Calpine Canada.

18. As part of the Combination each option to acquire Encal Common Shares (collectively, the "Encal Options") will be converted into or exchanged for an option (collectively, the "Calpine Options") to purchase a number of whole shares of Calpine Common Stock equal to the number of Encal Common Shares subject to such Encal Option multiplied by the Exchange Ratio rounded down to the nearest whole number of shares at an exercise price equal to the exercise price per share of such Encal Option, converted to U.S. dollars and divided by the Exchange Ratio. The obligations of Encal under the Encal Options as so converted or exchanged will be assumed by Calpine and Calpine will be substituted for Encal under, and as sponsor of, Encal's stock option plan. Holders of Encal Options ("Encal Optionholders") will be given dissent rights pursuant to the Arrangement.

19. Calpine has undertaken to comply with the conditions that would apply to Calpine if it distributed Calpine Common Stock in Canada pursuant to a prospectus filed under National Instrument 71-101 The Multijurisdictional Disclosure System ("NI 71-101"). In particular, if the Arrangement becomes effective:

(a) Calpine shall concurrently send to all holders of Exchangeable Shares resident in Canada all disclosure material furnished to holders of Calpine Common Stock resident in the United States, including, but not limited to, copies of its annual report and all proxy solicitation materials;

(b) Calpine Canada shall file with the securities commissions or other securities regulatory authorities in each jurisdiction in Canada copies of all documents filed by Calpine with the SEC under the Exchange Act, including, but not limited to, copies of any Form 10-K, Form 10-Q, Form 8-K and Proxy Circular and other material information prepared in connection with Calpine's annual meeting;

(c) Calpine shall comply with the requirements of the New York Stock Exchange (or such other principal stock exchange on which the Calpine Common Stock is then listed) in respect of making public disclosure of material information on a timely basis and shall forthwith issue in each Canadian jurisdiction and file with the securities commissions or other securities regulatory authorities in each jurisdiction in Canada any press release that discloses a material change in Calpine's affairs;

(d) Calpine Canada shall provide each recipient or proposed recipient of Exchangeable Shares resident in Canada with a statement that, as a consequence of the order in respect of the MRRS Application, Calpine Canada and its insiders will be exempt from certain disclosure requirements applicable to reporting issuers and insiders, that specifies those requirements Calpine Canada and its insiders have been exempted from, and that identifies the disclosure, that will be made in substitution therefor;

(e) Calpine Canada shall comply with the requirements of the applicable statutory or other regulatory requirements in each applicable Canadian jurisdiction to issue a press release and file a report with the securities commissions or other securities regulatory authorities in each jurisdiction in Canada upon the occurrence of a material change in respect of the affairs of Calpine Canada that are not material changes in the affairs of Calpine;

(f) Calpine shall include in all future mailings of proxy solicitation materials to holders of Exchangeable Shares a clear and concise insert explaining the reason for the mailed material being solely in relation to Calpine and not to Calpine Canada, such insert to include a reference to the economic equivalency between the Exchangeable Shares and Calpine Common Stock and the right to direct voting at Calpine Stockholders' meetings; and

(g) Calpine shall remain the direct or indirect beneficial owner of 100% of the issued and outstanding voting securities of Calpine Canada for as long as any outstanding Exchangeable Shares are owned by any person or entity other than Calpine or any of Calpine's subsidiaries provided, however, Calpine shall not be in violation of this provision if any person or group of persons acting jointly or in concert acquires Calpine Common Stock pursuant to any merger of Calpine pursuant to which Calpine is not the surviving corporation or acquires all or substantially all of Calpine's assets.

The Proxy Circular

20. Calpine and Encal are preparing the Proxy Circular with respect to the special meeting of Encal Shareholders and Encal Optionholders relating to the Arrangement and the approval of certain matters in connection therewith (the "Encal Meeting"). As promptly as practicable after the Proxy Circular is prepared and the interim order of the court respecting the Arrangement is granted, Encal intends to cause the Proxy Circular to be mailed to Encal Shareholders and Encal Optionholders entitled to vote at the Encal Meeting. It is expected that the Encal Meeting will be held on or about April 18, 2001. The Arrangement does not require the approval of the Calpine Stockholders.

21. The Proxy Circular will contain prospectus disclosure concerning the respective businesses of Encal and Calpine and a detailed description of the Combination, and will be mailed to Encal Shareholders and Encal Optionholders in connection with the Encal Meeting. The Proxy Circular will be prepared in conformity with the provisions of the Securities Act (Alberta), the ABCA, the applicable policy statements of the Alberta Securities Commission relating to information circulars and Rule 54-501 as it applies to reporting issuers in Ontario (subject to the exemptive relief granted by this Order).

22. The Proxy Circular will disclose that, in connection with the Combination, Calpine and Calpine Canada have applied for but not yet been granted relief from the registration and prospectus requirements, the continuous disclosure requirements and insider reporting requirements and disclosed the limitations imposed on any resale of securities acquired pursuant to the decision requested in an application filed with the Commission and the securities regulators in all jurisdictions in Canada on behalf of Calpine, Calpine Canada and Encal under National Policy No. 12-201, with Alberta as the principal jurisdiction (the "MRRS Application"). The Proxy Circular will disclose the disclosure requirements from which Calpine Canada has applied to be exempted and identify the disclosure that will be made in substitution therefor if such exemptions are granted.

Canadian GAAP Reconciliation of Calpine Financial Information

23. Calpine is eligible to distribute Calpine Common Stock in Canada pursuant to a prospectus filed under the multi-jurisdictional disclosure system prescribed by National Instrument 71-101 (the "MJDS Rule"). The Proxy Circular will include the disclosure that would be required in an MJDS Prospectus in respect of the business and affairs of Calpine, including complying with the applicable significant business acquisition rules of U.S. securities law.

24. Under the terms and conditions of the Combination and Arrangement and under the terms of the MRRS Application, if granted, Encal Shareholders will, after completion of the Arrangement, hold the Exchangeable Shares and will be provided with the continuous disclosure and other shareholder materials which are provided to holders of Calpine Common Stock in the United States.

Financial Statements of Calpine Canada

25. Calpine Canada has not conducted any active business since it was incorporated that is material to holders of Exchangeable Shares and will remain a wholly-owned subsidiary of Calpine at all times. The Exchangeable Shares will provide a former Encal Shareholder with a security having economic and voting rights which are, as nearly as practicable, equivalent to those of Calpine Common Stock. An Encal Shareholder resident in Canada will generally be able to receive the Exchangeable Shares on a tax-deferred rollover basis. The Exchangeable Shares will qualify as Canadian property for RRSP, RRlF, RESP and other savings and pension plans.

26. The Exchangeable Shares provide a holder with a security in a Canadian issuer (i.e. Calpine Canada) having economic and voting rights which are, as nearly as practicable, equivalent to those of Calpine Common Stock and should allow certain Encal Shareholders to receive the shares on a tax deferred basis. In particular, each Exchangeable Share will be (a) entitled to dividends from Calpine Canada payable at the same time as, and in the Canadian dollar equivalent of, each dividend paid by Calpine on a share of Calpine Common Stock, (b) exchangeable at the option of the holder at any time for a share of Calpine Common Stock, (c) entitled on the liquidation, dissolution or winding-up of Calpine Canada to be exchanged for one share of Calpine Common Stock, (d) upon the liquidation, dissolution or winding-up of Calpine, automatically exchanged for one share of Calpine Common Stock so that the holders thereof may participate in the dissolution of Calpine on the same basis as the holders of Calpine Common Stock and (e) entitled to direct voting rights equivalent to the voting rights attached to Calpine Common Stock at each meeting of holders of Calpine Common Stock.

27. The rights attaching to the Exchangeable Shares and the Calpine Common Stock are virtually identical and the value of the Exchangeable Shares and the Calpine Common Stock is entirely dependent only on the assets and operations of Calpine, of which the assets and operations of Calpine Canada form only an indirect part. Holders of Exchangeable Shares will effectively have a participating interest in Calpine and will not have a participating interest in Calpine Canada. It is only Calpine, as the sole holder of the outstanding common shares of Calpine Canada, and not the holders of Exchangeable Shares, that has a direct participating interest in Calpine Canada.

28. The Proxy Circular will contain prospectus disclosure relating to Calpine (including Calpine's compliance with United States securities law rules relating to significant acquisitions), Encal and Calpine Canada and the Exchangeable Shares.

AND WHEREAS the Director is satisfied that it would not be prejudicial to the public interest to grant the exemptive relief requested;

IT IS ORDERED pursuant to Section 3.1 of Rule 54-501 that Calpine, Calpine Canada and Encal be and are hereby exempted from the following requirements of Rule 54-501 as they would otherwise relate to the Proxy Circular: (a) that the financial information relating to Calpine and included in the Proxy Circular be reconciled to Canadian GAAP; and (b) that the Proxy Circular include the financial statements of Calpine Canada that would be required in a prospectus of Calpine Canada.

March 16, 2001.

Kathryn Soden