Securities Law & Instruments

Headnote

Canadian incorporated issuer accessed the capital markets in Ontario once. U.S. parent company pays participation fees. Canadian issuer permitted to calculate its participation fees as it were a "class 3 reporting issuer."

Statues Cited

Securities Act, R.S.O. 1990, c. S.5, as am.

Rules Cited

Ontario Securities Commission Rule 13-502 Fees (2003), 26 O.S.C.B. 890, ss. 2.2, 2.6, 2.7 and 6.1.

IN THE MATTER OF

THE SECURITIES ACT R.S.O. 1990, C. S.5, AS AMENDED

AND

IN THE MATTER OF

ONTARIO SECURITIES COMMISSION RULE 13-502 FEES (the "Fees Rule")

AND

IN THE MATTER OF

CALPINE CANADA ENERGY FINANCE ULC ("ULC")

 

EXEMPTION

(Section 6.1 of the Fees Rule)

UPON the Director having received an application on behalf of ULC seeking an exemption pursuant to Section 6.1 of the Fees Rule from the requirement to pay participation fees calculated in the manner prescribed in Section 2.6 of the Fees Rule, subject to conditions;

AND UPON considering the application and the recommendation of the staff of the Ontario Securities Commission;

AND UPON ULC having represented to the Director that:

1. ULC is an unlimited liability company organized in March 2001 under the laws of Nova Scotia. ULC is an indirect wholly-owned subsidiary of Calpine Corporation ("Calpine"). ULC was organized as a special purpose finance subsidiary of Calpine to raise funds for the business operations of Calpine and its subsidiaries.

2. To date ULC has effected three different financings, as follows:

(a) In March 2001, Calpine and ULC filed a shelf prospectus in the United States qualifying certain securities of Calpine and debt securities of ULC that were unconditionally guaranteed by Calpine. In April 2001, ULC effected an offering in the United States of U.S. $1.5 billion principal amount of 8 1/2% Senior Notes (the "U.S. Senior Notes") due May 1, 2008. This offering was effected as an underwritten offering under a prospectus supplement to the U.S. shelf prospectus referred to above.

(b) In September 2001, Calpine, ULC and Calpine Energy Finance II ULC ("ULC II") filed a shelf prospectus in the United States and concurrently filed the shelf prospectus in Canada (the "Canadian Shelf Prospectus") under the northbound multijurisdictional disclosure system ("MJDS") procedures contained in National Instrument 71-101 (the "MJDS Instrument"). These shelf prospectuses qualified for distribution certain securities of Calpine, as well as debt securities of each of ULC and ULC II to be unconditionally guaranteed by Calpine.

In October 2001, ULC effected an offering in Canada of Cdn. $200 million principal amount of 8 3/4% Senior Notes (the "Canadian Senior Notes") due October 15, 2007, pursuant to the Canadian Shelf Prospectus.

(c) In October 2001, ULC effected a further offering in the United States of U.S. $500 million of the U.S. Senior Notes (such transaction being a "reopening" of the securities issued in March 2001). This offering was effected under the U.S. shelf prospectus referred to in paragraph (b) above.

3. In connection with the filing of the Canadian Shelf Prospectus, Calpine, ULC and ULC II made application to Canadian securities regulators for relief from certain requirements of the MJDS Instrument to permit the Canadian Shelf Prospectus to be filed under northbound MJDS procedures contained in the MJDS Instrument. The relief was technically required because ULC and ULC II are organized under the laws of Canada; the MJDS Instrument permits usage of a finance subsidiary but requires that the finance subsidiary be organized under laws of the United States or a state or territory thereof.

4. A decision document (the "Disclosure Decision Document") dated October 24, 2001 was issued under the Mutual Reliance Review System on behalf of the Ontario Securities Commission and certain other Canadian securities regulators exempting ULC and ULC II from continuous disclosure requirements otherwise applicable to them on the basis that Calpine would comply with the disclosure requirements of a "U.S. issuer" under the MJDS Instrument.

5. Beneficial ownership of the Canadian Senior Notes is held in book-entry form through The Canadian Depository for Securities Limited or a nominee thereof ("CDS"), which is the sole registered holder of the Canadian Senior Notes. Beneficial ownership of the U.S. Senior Notes is held in book-entry form through Cede & Co., a nominee for the Depositary Trust Company, which is the sole registered holder of the U.S. Senior Notes.

6. ULC is a "Class 2 Reporting Issuer" under the Fees Rule. As a Class 2 reporting issuer, the capitalization of ULC is to be determined in accordance with section 2.6 of the Fees Rule. This capitalization was approximately Cdn. $3.4 billion as at December 31, 2003. This capitalization consists primarily of long-term debt, which in turn consists primarily of the U.S. Senior Notes (all but Cdn. $200 million).

7. Apart from the offering of Canadian Senior Notes in October 2001, ULC has not offered securities in Canada.

AND UPON the Director being satisfied that to do so would not be prejudicial to the public interest;

IT IS THE DECISION of the Director, pursuant to Section 6.1 of the Fees Rule, that ULC is exempt from the requirement in section 2.2 to pay a participation fee as a Class 2 reporting issuer for each of its financial years, provided that ULC pays a participation fee based on having a capitalization determined in accordance with subsection 2.7(a) of the Fees Rule as if it were a Class 3 reporting issuer, subject to the following modifications:

(a) securities issued by ULC that are not listed or traded on a marketplace, other than securities issued to an affiliate or debt securities issued to a commercial lender in connection with a loan or credit facility, shall be deemed to be listed or traded on a marketplace;

(b) for securities not listed or traded on a marketplace, ULC shall, acting reasonably, determine the market value as of the last trading day of each month during the subject year of each class of securities registered in the name of an Ontario person, and may rely upon the advice of a market intermediary for this purpose;

(c) only the percentage of the class or series registered in the name of an Ontario person shall be included in the calculation.

IT IS THE FURTHER DECISION of the Director this Decision shall cease to be effective upon ULC:

(a) ceasing to be a Class 2 reporting issuer;

(b) failing to satisfy the conditions set out in the Disclosure Decision Document; or

(c) offering securities in the capital markets of Ontario.

AND IT IS THE FURTHER DECISION of the Director that no late fees shall be assessed against ULC under Section 2.9 of the Fees Rule in respect of payment of its 2003 participation fees, provided that ULC forwards payment of applicable participation fees not later than seven days from the date of this Decision.

March 29, 2004.

"Charlie MacCready"