Harbinger Capital Partners

January 17, 2007 12:18 ET

Harbinger Offers Transaction Superior to Calpine Power Income Fund Settlement Agreement and Proposes Alternative Transaction Valued at a Minimum of $100 Million

CALGARY, ALBERTA--(CCNMatthews - Jan. 17, 2007) -

NOT FOR DISSEMINATION IN THE UNITED STATES OR OVER UNITED STATES WIRE SERVICES

Harbinger Capital Partners today announced that it has submitted an offer to Ernst & Young Inc., in its capacity as the court-appointed monitor in the Canadian insolvency proceedings (the "Monitor"), for all of the Class B subordinated units (the "Class B Units") of Calpine Power, L.P. ("CLP") and various management agreements (the "Management Agreements") among affiliates of each of Calpine Corporation ("Calpine") and Calpine Power Income Fund (the "Fund"). The offer, which is subject only to the receipt of all regulatory approvals and an order of the Court in acceptable form and definitive documentation, provides for HCP Acquisition Inc. (the "Offeror") to acquire all of the Class B Units (including all rights and entitlements accruing to the Class B Units in relation to claims by CLP) and the Management Agreements for an aggregate purchase price equal to the greater of: (a) $100 million; and (b) the Fund's proposed price plus $2 million.

The offer is not conditional on the Offeror's take-over bid for all the outstanding units of the Fund being successful. However, if the bid is successful and the Offeror acquires all of the units of the Fund, the Offeror will pay CCPL an additional $20 million and will enter into or otherwise affirm the Settlement Agreement proposed by the Fund, provided that the Offeror is satisfied with its terms, acting reasonably. In this manner, to the extent the bid is successful, the Monitor will have materially increased the consideration received for these assets. Unlike the Fund's settlement agreement, Harbinger's offer in no way precludes the Monitor from soliciting or otherwise initiating or encouraging alternative offers or proposals that might bring greater value to CCPL in the insolvency proceedings.

"We and various other creditors involved in the Calpine CCAA proceedings were discouraged that the Monitor would have entered into the settlement agreement without tendering these assets for auction," stated Howard Kagan, a managing director of Harbinger Capital Partners. "The Monitor knew or ought to have reasonably known that these assets were of interest to Harbinger and other parties."

"The Fund's very recent and expedited efforts to acquire the Class B Units and settle matters with its manager appear to have been taken in response to our take-over bid," continued Mr. Kagan. "However, the Trustees' efforts to keep all details of their proposed deal confidential until after approved by the Court makes one question the motives of the Trustees. It is difficult to know whether this deal, once the details are made public to unitholders, would be such as to cause Harbinger to amend or withdraw its offer for the Trust."

Harbinger's offer in relation to the Class B Units and Management Agreements is open for acceptance until 4:00 p.m. (Calgary time) on February 16, 2007, unless accepted by the Monitor or extended or terminated in writing by Harbinger.

Cautionary Statements

This news release contains forward-looking statements, which reflect the Offeror's and Harbinger Capital Partners' current beliefs and expectations. These forward-looking statements are subject to risks and uncertainties. Many factors could cause actual results to differ materially from the results discussed in the forward-looking statements. Undue reliance should not be placed on forward-looking statements.

This announcement does not constitute or form part of any offer or invitation to purchase, otherwise acquire, subscribe for, sell, otherwise dispose of or issue, or any solicitation of any offer to sell, otherwise dispose of, issue, purchase, otherwise acquire or subscribe for, any security. The release, publication or distribution of this announcement in certain jurisdictions may be restricted by law and therefore persons in such jurisdictions into which this announcement is released, published or distributed should inform themselves about and observe such restrictions. The Offer is not being made to, nor will deposits be accepted from, or on behalf of, unitholders in any jurisdiction in which the making or acceptance of the Offer would not be in compliance with the laws of such jurisdiction. However, the Offeror or its agents may, in the sole discretion of the Offeror, take such action as the Offeror may deem necessary to extend the Offer to unitholders in any such jurisdiction.

This announcement contains certain information relating to the Fund and its subsidiary entities. Neither the Offeror nor Harbinger Capital Partners have had any due diligence access to the Fund or its subsidiary entities. The information in this announcement relating to the Fund and its subsidiary entities has been compiled from information included in public documents filed by the Fund only and has not been commented on or verified by the Fund, its trustees, or Harbinger Capital Partners or Offeror. The Offeror and Harbinger Capital Partners believe that they are not in possession of any material non-public financial or other information in respect of the Fund or its subsidiary entities.



HCP ACQUISITION INC.

January 16, 2007

Ernst & Young Inc.,
In its capacity as Court Appointed
Monitor of the Applicants (as herein defined)
and the CCAA Parties (as herein defined)

Attention: Neil Narfason, Senior Vice-President

Dear Sir:

Re: Offer to Acquire the Class B Units (the "Class B Units") of Calpine
Power, L.P. ("CLP") and Certain Contracts held by Calpine Canada
Power Ltd. ("CCPL") for at least Cdn. $100 million


As you are aware, on December 20, 2006, HCP Acquisition Inc. (the "Offeror"), an indirect wholly-owned subsidiary of Harbinger Capital Partners Master Fund I, Ltd. and Harbinger Capital Partners Special Situations Fund, L.P. (collectively, "Harbinger") commenced a take-over bid for all of the issued and outstanding trust units (the "Units") of Calpine Power Income Fund (the "Fund") not owned by the Offeror, Harbinger or their respective affiliates (the "Take-over Bid").

On January 13, 2007, during the currency of the Take-over Bid, the board of trustees (the "CCT Trustees") of Calpine Commercial Trust ("CCT"), on behalf of the Fund, issued a press release announcing that the Fund had reached a settlement agreement (the "Settlement Agreement") with Calpine Canada Power Ltd. ("CCPL"), the Fund's manager and administrator, subject to approval of the Court of Queen's Bench of Alberta (the "Court") in the Companies Creditors Arrangement Act (Canada) (the "CCAA") proceedings involving each of Calpine Canada Energy Limited, CCPL, Calpine Canada Energy Finance ULC, Calpine Energy Services Canada Ltd., Calpine Canada Resources Company, Calpine Canada Power Services Ltd., Calpine Canada Energy Finance II ULC, Calpine Natural Gas Services Limited and 3094479 Nova Scotia Company (collectively, the "Applicants") and Calpine Energy Services Canada Partnership, Calpine Canada Natural Gas Partnership and Calpine Canadian Saltend Limited Partnership (collectively, the "CCAA Parties").

Although not all of the material terms of that Settlement Agreement were disclosed by the Fund, the press release indicated that one element of the Settlement Agreement involved the potential purchase by the Fund of CCPL's 30% subordinated ownership interest in CLP by way of the acquisition of the Class B Units. Ernst & Young Inc., in its capacity as Court appointed monitor (the "Monitor") of the Applicants and the CCAA Parties, has indicated in its Sixteenth Report of the Monitor dated January 14, 2007 (the "16th Report") its support for the Settlement Agreement and its intention to request Court approval of that Settlement Agreement on January 17, 2007.

We are confident that the terms of the B Unit Offer described below will represent a material financial improvement in the outcome for the Applicants and the CCAA Parties.

The Offeror hereby offers (the "B Unit Offer") to acquire all of the Class B Units (including for greater certainty all rights and entitlements accruing to the Class B Units in relation to claims by CLP) free and clear of all liens and encumbrances from CCPL and the Contracts (as defined in the 16th Report) to which CCPL is a party at an aggregate purchase price equal to the greater of: (a) Cdn. $100 million; and (b) the Transaction Price (as defined in the 16th Report) plus Cdn. $2 million (the applicable amount being herein, the "Consideration").

The B Unit Offer is not contingent on the Take-over Bid being successful. However, if the Take-over Bid is successful and the Offeror thereby acquires, including pursuant to a compulsory acquisition or second step transaction, all of the issued and outstanding Units of the Fund not already owned by the Offeror, Harbinger or their respective affiliates, the Offeror shall pay CCPL an additional Cdn. $20 million (the "Increased Consideration") and shall enter into or otherwise affirm the Settlement Agreement provided that the Offeror receives a copy thereof and is satisfied with its terms, acting reasonably.

In addition, the B Unit Offer is not contingent on the resolution of outstanding claims involving CCPL and its subsidiaries and CLP or the Fund, including without limitation as they relate to the potential termination of the Contracts, the six year term loan at a fixed rate of 13% per annum in the principal amount of $48 million made by CCT to CCPL in 2004 and a loan made by CLP to Calpine Canada Whitby Holdings Company.

The Offeror's willingness to complete the B Unit Offer is subject to execution of satisfactory legal documentation and the receipt of all regulatory approvals typical for a transaction of this nature and an order of the Court in a form acceptable to the Offeror. The B Unit Offer is not subject to any financing condition.

The B Unit Offer will not preclude the Monitor from soliciting, initiating or encouraging proposals or offers from, or participating in negotiations with, any third party, or providing information to any third party on substantially the same terms as such information is provided to the Offeror, relative to any alternative transaction relating to any of the items which are the subject of the Settlement Agreement, on terms satisfactory to the Court, provided that the Monitor agrees to: provide immediate notice thereof to the Offeror (together with a copy thereof) (such notice and copy to be kept as confidential information by the Offeror under the terms of a confidentiality agreement agreed to by the Offeror and the Monitor); not respond thereto unless the Monitor, with the approval of the Court, determines that such action is necessary in order for the Monitor to act in a manner consistent with its duties and then only in the manner directed by the Court; and not accept, recommend, approve or enter into any agreement to implement an alternative transaction unless such proposal is determined by the Monitor in good faith to be superior to the B Unit Offer and the Offeror does not, prior to: (a) the later of the expiry of 3 business days following the notice referred to in (i) above; and (b) February 16, 2007, propose to amend the B Unit Offer or the Consideration (or Increased Consideration, as the case may be) offered pursuant thereto such that the proposal is no longer superior to the B Unit Offer.

The B Unit Offer will remain in effect until 4:00 p.m. (Calgary time) on February 16, 2007, unless accepted in writing by the Monitor or extended or terminated in writing by the Offeror prior to the Monitor's acceptance. Following the Monitor's acceptance, the terms and conditions of the B Unit Offer will automatically terminate and be of no further force and effect upon the earlier of the execution of a definitive purchase and sale agreement; February 16, 2007; or the mutual agreement of the Offeror and the Monitor.

We are committed to completing the B Unit Offer and have the necessary funds to do so, and look forward to discussing with you proceeding with the B Unit Offer, including potentially improving the B Unit Offer to the extent we are provided the Settlement Agreement and the terms and conditions thereof so warrant.

Yours very truly,

HCP ACQUISITION INC.

Howard Kagan, Director

cc: Patrick T. McCarthy, Borden Ladner Gervais LLP, Counsel to the Monitor (by email)

Toby Austin, President and Chief Executive Officer, Calpine Canada Power Ltd. (by email)

Robert Hodgins, Chairman of the Board of Trustees, Calpine Commercial Trust (by email)

Brock Gibson, Blake Cassels & Graydon LLP, Counsel to the Board of Trustees (by email)

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