UPDATE: Harbert Distressed Investment Master Fund Sends Letter To Boar

NEW YORK, April 14 /PRNewswire-FirstCall/ -- Harbert Distressed Investment Master Fund, Ltd. yesterday delivered a letter to the Boards of Directors of Calpine Corporation and certain of its subsidiaries. The letter and a release yesterday announcing delivery of the letter incorrectly referred to 8 3/4% bonds of Calpine Canada Energy Finance II ULC. The coupon on these bonds is 8 3/8%. Also, the letter as reproduced in the prior release incorrectly stated the amount of the Term Debenture issued August 23, 2001 by Calpine Canada Resources Ltd. The correct amount is 275,000,000 pounds sterling.

The corrected letter, which has been sent to Calpine, follows.

Harbert Distressed Investment Master Fund, Ltd. is focused on high-yield (special situation) and distressed securities on both the long and short sides, including debt and equity investments in turnarounds, restructurings, liquidations, event driven situations and inter-capital structure arbitrage.

Harbert Distressed Investment Master Fund, Ltd. c/o 555 Madison Avenue, 16th Floor New York, New York 10022 April 13, 2005 VIA FACSIMILE Directors of: Calpine Canada Energy Finance II ULC Calpine Canada Resources Ltd. Calpine European Funding (Jersey) Limited Calpine Corporation RE: Harbert Distressed Investment Master Fund, Ltd. (the "Fund"): Bonds Issued by Calpine Canada Energy Finance II ULC

The Fund is writing to you as the holder of bonds issued by Calpine Canada Energy Finance II ULC ("Finance II"). The Fund holds a significant amount of both the 8 7/8% bonds due October, 2011 and the 8 3/8% bonds due October, 2008 (collectively, the "Bonds").

The Fund is concerned that your recent announcements concerning the sale of the Saltend Power Generating Facility (the "Saltend Facility") and the issuance of $260,000,000 in redeemable preferred shares by Calpine European Funding (Jersey) Limited ("Calpine Jersey") are evidence of an effort to strip the value of the Saltend Facility out of Calpine Jersey and, indirectly, its parent, Calpine Canada Resources Ltd. ("Resources"), to the prejudice of Finance II's bondholders.

If the value of the Saltend Facility is stripped away, Resources will be unable to meet its obligations to Finance II under the Term Debenture issued August 23, 2001 in the amount of 275,000,000 pounds and Finance II will be unable to meet its obligations under the Bonds. The Saltend Facility is the commercial enterprise which supports Resources obligations to Finance II under the Term Debenture which, in turn, supports Finance II's ability to repay the Bonds.

The Fund is of the view that these actions are in breach of the legal obligations, public announcements and the expectations created by Finance II, Resources and Calpine Corporation ("Calpine").

The Term Debenture, made public by Calpine in November, 2004, provides that Resources would conduct its business "so as to preserve and protect its business and assets". The sale or financing of the Saltend Facility in circumstances where Resources does not receive adequate consideration is a breach of the obligations under the Term Debenture.

The Bonds were issued pursuant to a prospectus included in a registration statement filed with the United States Security and Exchange Commission registration number 333-67446 (the "Prospectus").

The Prospectus provided in part as follows: "page 19 ... The right of Calpine's debt security holders to receive any assets of any of Calpine's subsidiaries or other affiliates upon Calpine's liquidation or reorganization will be subordinated to the claims of any subsidiaries' or other affiliates' creditors (including trade creditors and holders of debt issued by Calpine's subsidiaries or affiliates, including Energy Finance and Energy Finance II)."

Accordingly, it was intended and represented by Calpine that the creditors of Finance II, including holders of the Bonds, would (a) have recourse to the assets of Finance II (including the Term Debenture) in priority to the creditors of Calpine and (b) have a claim on any assets of any of Calpine's subsidiaries or other affiliates which claim is senior to Calpine's creditors. The Fund strongly suspects that Calpine initiated the sale of the Saltend Facility and preferred issuance by Calpine Jersey in an ongoing effort to address significant shortfalls in Calpine's liquidity. We strongly suspect that the proceeds are intended to be used to repurchase or refinance Calpine debt, and that these transactions are part of an ongoing de facto liquidation and reorganization of Calpine in contravention of these representations. We have serious and growing concerns over Calpine's solvency. The Fund believes that Calpine should not be permitted to liquidate or reorganize to the detriment of Finance II in contravention of these representations simply because it is in advance of a formal bankruptcy filing or out-of-court restructuring announcement.

It appears to us that the actions constitute an 'end run' around the obligations in the Term Debenture and the Prospectus and are an attempt to prefer the creditors of Calpine and certain affiliates over the bondholders. The value of the Saltend Facility must remain available to Resources and Finance II, at least to the extent of the principal and interest amounts outstanding under the two series of Finance II debt which include the Bonds.

This letter is notice that the Fund requires your public written confirmation that the cash proceeds of any sale or financing of the Saltend Facility continues to be and will be held in cash at Resources until the maturity of the Bonds in order to support:

(a) the obligations of Resources to Finance II under the Term Debenture; and (b) the obligations of Finance II to its bondholders, including the Fund which are, at a minimum, sufficient to fund the principal and interest obligations under the Bonds.

In the event that the proceeds of the sale or any refinancing of the Saltend Facility have already been transferred to Calpine or any of its affiliates, we will require your public written confirmation that the proceeds will immediately be repaid to Resources and held in cash pending the maturity and repayment in full of the Bonds.

The Fund is advised by its counsel that the transactions which Calpine has or is about to conclude to upstream the proceeds of the sale or financing of the Saltend Facility are oppressive, unfairly prejudicial to and unfairly disregard the rights of the bondholders of Finance II, including the Fund, contrary to the provisions of the Nova Scotia Companies Act (the "Act"). The oppression remedy under the Act is designed to protect corporate stakeholders from conduct that is oppressive, unfairly prejudicial to or unfairly disregards the rights of the stakeholders. Under the Act, a court is empowered to make any order it sees fit to rectify the oppressive conduct including orders restraining oppressive conduct and setting aside or varying corporate contracts or transactions. Conduct which may be legal in the narrow sense can be found to be oppressive and remedy awarded.

In addition, under Canadian law the directors of Finance II and Resources owe a duty of care to the creditors of Finance II and Resources. Any transactions which strip the assets out of Finance II and Resources and render them unable to meet their obligations to their creditors, including the bondholders, are in breach of the directors' obligations to the creditors and could result in personal liability for the directors.

If you do not publicly announce your written confirmation as requested herein by April 26, 2005, we have instructed our counsel, ThorntonGroutFinnigan LLP, of Toronto, Canada to commence proceedings to enforce our rights.

Sincerely, Harbert Distressed Investment Master Fund, Ltd. By: HMC Distressed Investment Offshore Manager, L.L.C., as its investment manager /s/ Philip Falcone Philip Falcone Vice President Cc: John Finnigan, ThorntonGroutFinnigan LLP