CALPINE CORP, S-4, 1996-06-19

CALPINE CORP
S-4, 1996-06-19
COGENERATION SERVICES & SMALL POWER PRODUCERS

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 19, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

CALPINE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
CALIFORNIA 4911 77-0031605
(STATE OF INCORPORATION) (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>

50 WEST SAN FERNANDO STREET
SAN JOSE, CA 95113
(408) 995-5115
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

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

PETER CARTWRIGHT
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CALPINE CORPORATION
50 WEST SAN FERNANDO STREET
SAN JOSE, CA 95113
(408) 995-5115
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)

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

COPIES TO:

<TABLE>
<S> <C>
JOSEPH E. RONAN, JR., ESQ. SCOTT D. LESTER, ESQ.
GENERAL COUNSEL BROBECK, PHLEGER & HARRISON LLP
CALPINE CORPORATION ONE MARKET
50 WEST SAN FERNANDO STREET SPEAR STREET TOWER
SAN JOSE, CA 95113 SAN FRANCISCO, CA 94105
(408) 995-5115 (415) 442-0900
</TABLE>

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.

If the securities being registered on the Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /

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

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
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10 1/2% Senior Notes Due 2006.......... $180,000,000 -- $180,000,000 $62,069
================================================================================================
</TABLE>

(1) Pursuant to Rule 457(f)(2) of the Securities Act of 1933, as amended, the
registration fee has been estimated based on the book value of the
securities to be received by Registrant in exchange for the securities to be
issued hereunder in the Exchange Offer described herein.
------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2

CALPINE CORPORATION

CROSS REFERENCE SHEET PURSUANT TO ITEM 501(B) OF
REGULATION S-K SHOWING THE LOCATION IN THE PROSPECTUS
OF THE INFORMATION REQUIRED BY THE ITEMS OF FORM S-4

<TABLE>
<CAPTION>
ITEM NO. ITEMS IN FORM S-4 CAPTION IN PROSPECTUS
- -------- ---------------------------------------- -------------------------------------------
<C> <S> <C>
1. Forepart of Registration Statement and
Outside Front Cover Page of
Prospectus............................ Front Cover Page of Registration Statement;
Cross Reference Sheet; Outside Front
Cover Page of Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus................... Inside Front and Outside Back Cover Pages
of Prospectus; Table of Contents; Available
Information
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information......... Prospectus Summary; Risk Factors; The
Company; Selected Consolidated Financial
Information
4. Terms of the Transaction................ Prospectus Summary; The Exchange Offer;
Description of the Notes; Certain Federal
Income Tax Considerations
5. Pro Forma Financial Information......... Prospectus Summary; Pro Forma Consolidated
Financial Data; Selected Consolidated
Financial Data; Business
6. Material Contracts with the Company
Being Acquired........................ *
7. Additional Information Required for
Reoffering by Persons and Parties
Deemed to be Underwriters............. *
8. Interests of Named Experts and
Counsel............................... Legal Matters; Experts
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities........................... *
10. Information with Respect to S-3
Registrants........................... *
11. Incorporation of Certain Information by
Reference............................. *
12. Information with Respect to S-2 or S-3
Registrants........................... *
13. Incorporation of Certain Information by
Reference............................. *
</TABLE>
<PAGE> 3

<TABLE>
<CAPTION>
ITEM NO. ITEMS IN FORM S-4 CAPTION IN PROSPECTUS
- -------- ---------------------------------------- -------------------------------------------
<C> <S> <C>
14. Information with Respect to Registrants
Other Than S-2 or S-3 Registrants..... Outside Front Cover Page of Prospectus;
Prospectus Summary; Risk Factors; Use of
Proceeds; Dividend Policy;
Capitalization; Selected Consolidated
Financial Data; Pro Forma Consolidated
Financial Data; Management's Discussion
and Analysis of Financial Condition and
Results of Operations; Business;
Management; Executive Compensation;
Certain Transactions; Principal
Shareholders; Description of Capital
Stock; Description of Certain Other
Indebtedness; Consolidated Financial
Statements
15. Information with Respect to S-3
Companies............................. *
16. Information with Respect to S-2 or S-3
Companies............................. *
17. Information with Respect to Companies
Other Than S-2 or S-3 Companies....... *
18. Information if Proxies, Consents or
Authorizations Are To Be Solicited.... *
19. Information if Proxies, Consents or
Authorizations Are Not To Be Solicited
in an Exchange Offer.................. Management; Principal Shareholders
</TABLE>

- ---------------
* Item is omitted because response is negative or item is inapplicable.
<PAGE> 4

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE
WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH JURISDICTION.

PROSPECTUS (Subject to Completion)

Issued June 19, 1996

OFFER TO EXCHANGE
all outstanding
10 1/2% SENIOR NOTES DUE 2006
($180,000,000 principal amount outstanding)

for
10 1/2% SENIOR NOTES DUE 2006
of
LOGO
CALPINE CORPORATION
------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1996, UNLESS EXTENDED.

------------------------
CALPINE CORPORATION, A CALIFORNIA CORPORATION ("CALPINE" OR THE "COMPANY"),
HEREBY OFFERS, UPON THE TERMS AND SUBJECT TO THE CONDITIONS SET FORTH IN THIS
PROSPECTUS AND THE ACCOMPANYING LETTER OF TRANSMITTAL (THE "LETTER OF
TRANSMITTAL"), TO EXCHANGE ITS 10 1/2% SENIOR NOTES DUE 2006 (THE "NEW
NOTES"), IN AN OFFERING WHICH HAS BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), PURSUANT TO A
REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS CONSTITUTES A PART,
FOR AN EQUAL PRINCIPAL AMOUNT OF ITS OUTSTANDING 10 1/2% SENIOR
NOTES DUE 2006 (THE "OLD NOTES"), OF WHICH AN AGGREGATE OF
$180,000,000 IN PRINCIPAL AMOUNT IS OUTSTANDING AS OF THE DATE
HEREOF (THE "EXCHANGE OFFER"). THE NEW NOTES AND THE OLD NOTES
ARE SOMETIMES REFERRED TO HEREIN COLLECTIVELY AS THE "SENIOR
NOTES." THE FORM AND TERMS OF THE NEW NOTES WILL BE THE SAME
AS THE FORM AND TERMS OF THE OLD NOTES EXCEPT THAT THE NEW
NOTES WILL NOT BEAR LEGENDS RESTRICTING THE TRANSFER
THEREOF. THE NEW NOTES WILL BE OBLIGATIONS OF THE COMPANY
ENTITLED TO THE BENEFITS OF THE INDENTURE, DATED AS OF
MAY 16, 1996 (THE "INDENTURE"), RELATING TO THE
SENIOR NOTES. SEE "DESCRIPTION OF THE NEW NOTES."
FOLLOWING THE COMPLETION OF THE EXCHANGE OFFER,
NONE OF THE SENIOR NOTES WILL BE ENTITLED TO ANY
RIGHTS UNDER THE REGISTRATION RIGHTS AGREEMENT
DATED AS OF MAY 16, 1996 (THE "REGISTRATION
RIGHTS AGREEMENT"), INCLUDING, BUT NOT
LIMITED TO, THE CONTINGENT INCREASE IN THE
INTEREST RATE PROVIDED FOR PURSUANT
THERETO. SEE "THE EXCHANGE OFFER."

------------------------
INVESTMENT IN THE SENIOR NOTES INVOLVES SIGNIFICANT RISKS DISCUSSED UNDER "RISK
FACTORS" ON PAGE 14 WHICH SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.

------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

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

The date of this Prospectus is , 1996.
<PAGE> 5

The Company will accept for exchange any and all Old Notes that are validly
tendered on or prior to 5:00 p.m., New York City time, on the date the Exchange
Offer expires, which will be , 1996 unless the Exchange Offer is
extended (the "Expiration Date"). Tenders of Old Notes may be withdrawn at any
time prior to 5:00 p.m., New York City time, on the Expiration Date. The
Exchange Offer is not conditioned upon any minimum principal amount of Old Notes
being tendered for exchange.

The Old Notes initially sold to Qualified Institutional Buyers (as defined
in Rule 144A) in reliance on Rule 144A under the Securities Act ("Rule 144A")
were initially represented by a single, permanent global Note in definitive,
fully registered form, registered in the name of a nominee of The Depositary
Trust Company ("DTC"), which was deposited with Fleet National Bank, the Trustee
under the Indenture (the "Trustee"), as custodian. The Old Notes initially sold
in offshore transactions in reliance on Regulation S under the Securities Act
("Regulation S") were initially represented by a single, temporary global Old
Note, in definitive, fully registered form, registered in the name of a nominee
of DTC for the accounts of Morgan Guaranty Trust Company of New York, Brussels
Office, as operator of the Euroclear System ("Euroclear") and Centrale de
Livraison de Valeurs Mobilieres S.A. ("Cedel"), which was deposited with the
Trustee as custodian. Such temporary global Old Note was exchanged for a single,
permanent global Old Note, which is held by the Trustee, as custodian. The New
Notes exchanged for the Old Notes that are represented by the global Old Notes
will continue to be represented by permanent global Old Notes (collectively, the
"Global Notes," and individually, a "Global Note") in definitive, fully
registered form, registered in the name of a nominee of DTC and deposited with
the Trustee as custodian, unless the beneficial holders thereof request
otherwise. See "Description of the New Notes -- Book Entry; Delivery and Form."
Old Notes may be tendered only in denominations of $1,000 and any integral
multiple thereof.

Interest on the New Notes will be payable semi-annually in arrears on May
15 and November 15 of each year (each an "Interest Payment Date"), commencing on
the first such date following their date of issuance. Interest on the New Notes
will accrue from the last Interest Payment Date on which interest was paid on
the Old Notes that are accepted for exchange or, if no interest has been paid,
from May 16, 1996. Accordingly, interest which has accrued since the last
Interest Payment Date or May 16, 1996 on the Old Notes accepted for exchange
will cease to be payable upon issuance of the New Notes. Untendered Old Notes
that are not exchanged for New Notes pursuant to the Exchange Offer will remain
outstanding and bear interest at a rate of 10 1/2% per annum after the
Expiration Date.

Based on no-action letters issued by the staff of the Securities and
Exchange Commission (the "Commission") to third parties, the Company believes
the New Notes issued pursuant to the Exchange Offer may be offered for resale,
resold and otherwise transferred by a holder thereof (other than (i) a
broker-dealer who acquires such New Notes directly from the Company to resell
pursuant to Rule 144A or any other available exemption under the Securities Act
or (ii) a person that is an affiliate of the Company (within the meaning of Rule
405 under the Securities Act)) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that the holder
is acquiring the New Notes in the ordinary course of such holder's business and
is not participating, and has no arrangement or understanding with any person to
participate, in the distribution of the New Notes. Holders of Old Notes wishing
to accept the Exchange Offer must represent to the Company that such conditions
have been met. Each broker-dealer that receives New Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Old Notes where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that it will make
this Prospectus available to any broker-dealer for use in connection with any
such resale for a period of 180 days from the date of this Prospectus, or such
shorter period as will terminate when all Old Notes acquired by broker-dealers
for their own accounts as a result of market-making activities or other trading
activities have been exchanged for New Notes and resold by such broker-dealers.
See "Plan of Distribution."

2
<PAGE> 6

Prior to the Exchange Offer, there has been no public market for the Senior
Notes. The Company does not intend to list the New Notes on any securities
exchange or to seek approval for quotation through any automated quotation
system. There can be no assurance that an active market for the New Notes will
develop. To the extent that a market for the New Notes develops, the market
value of the New Notes will depend on market conditions (such as yields on
alternative investments) general economic conditions, the Company's financial
condition and other conditions. Such conditions might cause the New Notes, to
the extent that they are actively traded, to trade at a significant discount
from the face value. See "Risk Factors -- Absence of Public Market."

The Company will not receive any proceeds from the Exchange Offer. The
Company has agreed to bear the expenses of the Exchange Offer. No underwriter is
being used in connection with the Exchange Offer.

THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
------------------------

AVAILABLE INFORMATION

The Company has filed with the Commission a Registration Statement on Form
S-4 under the Securities Act with respect to the New Notes offered hereby. As
permitted by the rules and regulations of the Commission, this Prospectus omits
certain information, exhibits and undertakings contained in the Registration
Statement. The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files periodic reports and other information with the
Commission. For further information with respect to the Company and the New
Notes offered hereby, reference is made to the Registration Statement, including
the exhibits thereto and the financial statements, notes and schedules filed as
a part thereof, as well as the periodic reports and other information filed by
the Company with the Commission, which may be inspected and copied at the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the regional offices of the
Commission located at 7 World Trade Center, 13th Floor, New York, New York 10048
and Suite 1400, Northwestern Atrium Center, 500 West Madison Street, Chicago,
Illinois 60661-2511. Copies of such materials may be obtained from the Public
Reference Section of the Commission, Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and its public reference facilities in New
York, New York and Chicago, Illinois, at the prescribed rates. Statements
contained in this Prospectus as to the contents of any contract or other
document are not necessarily complete, and in each instance reference is made to
the copy of such contract or document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.

3
<PAGE> 7

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND THE
ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. NEITHER THIS PROSPECTUS, NOR THE ACCOMPANYING LETTER OF TRANSMITTAL, OR
BOTH TOGETHER, NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE
AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF. NEITHER THIS PROSPECTUS NOR THE ACCOMPANYING LETTER OF
TRANSMITTAL, OR BOTH TOGETHER, CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.

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

TABLE OF CONTENTS

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PAGE
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<S> <C>
Summary............................................................................... 5
Risk Factors.......................................................................... 14
Use of Proceeds....................................................................... 23
Dividend Policy....................................................................... 23
The Exchange Offer.................................................................... 23
Capitalization........................................................................ 31
Selected Consolidated Financial Data.................................................. 32
Pro Forma Consolidated Financial Data................................................. 34
Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 41
Business.............................................................................. 50
Management............................................................................ 82
Executive Compensation................................................................ 86
Certain Transactions.................................................................. 89
Principal Shareholders................................................................ 90
Description of Capital Stock.......................................................... 91
Description of the New Notes.......................................................... 91
Description of Certain Other Indebtedness............................................. 120
Transfer Restrictions................................................................. 121
Certain Federal Income Tax Considerations............................................. 122
Plan of Distribution.................................................................. 125
Legal Matters......................................................................... 125
Experts............................................................................... 125
Consolidated Financial Statements..................................................... F-1
</TABLE>

4
<PAGE> 8

SUMMARY

The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements appearing elsewhere in this
Prospectus. Unless the context indicates otherwise, all references in this
Prospectus to the "Company" or "Calpine" include Calpine Corporation and its
consolidated subsidiaries.

THE COMPANY

Calpine is engaged in the acquisition, development, ownership and operation
of power generation facilities and the sale of electricity and steam in the
United States and selected international markets. The Company has interests in
14 power generation facilities and steam fields having an aggregate capacity of
937 megawatts. Since its inception in 1984, Calpine has developed substantial
expertise in all aspects of electric power generation. The Company's vertical
integration has resulted in significant growth over the last five years as
Calpine has applied its extensive engineering, construction management,
operations, fuel management and financing capabilities to successfully implement
its acquisition and development program. During the last five years, Calpine has
expanded substantially, from $41.2 million of total assets as of December 31,
1991 to $778.7 million of total assets on a pro forma basis as of March 31,
1996. Calpine's revenue on a pro forma basis for 1995 increased to $188.0
million, representing a compound annual growth rate of 48% since 1991. The
Company's EBITDA (as defined herein) on a pro forma basis for 1995 increased to
$101.4 million.

THE MARKET

The power generation industry represents the third largest industry in the
United States, with an estimated end user market of approximately $207.5 billion
of electricity sales and 3.0 million gigawatt hours of production in 1995. New
regulatory initiatives are currently being adopted at both state and federal
levels to increase competition in the domestic power generation industry.
Calpine believes that as a result of such initiatives, utilities will purchase
energy generated by third-party producers for sale to end user customers at
prices determined through open market competition, rather than at rates
established by regulatory agencies. The Company believes that these regulatory
initiatives will create substantial opportunities for companies such as Calpine
to produce, market and sell energy to end user customers at competitive rates.

The power generation industry outside the United States is approximately
three times larger than the domestic market. The demand for electricity is
growing rapidly in many countries. In 1996, it has been estimated that in excess
of 590 gigawatts of new capacity would be required over the ensuing ten-year
period. In order to satisfy this anticipated increase in demand, many countries
have adopted active government programs designed to encourage private investment
in power generation facilities. The Company believes that these programs will
create significant opportunities to acquire and develop power generation
facilities in such countries in the future.

STRATEGY

Calpine's growth strategy in the United States is to maximize the power
generation potential of its operating assets and to continue to acquire and
develop additional generating capacity utilizing primarily natural gas-fired and
geothermal power generation technologies. Calpine is developing an integrated
nationwide power marketing capability, which the Company believes will enhance
the earning potential of its operating assets, generate additional revenue and
expand its customer base. Internationally, the Company intends to utilize its
gas-fired and geothermal expertise in selected markets of Southeast Asia and
Latin America, where demand for power is rapidly growing and where private
investment is encouraged.

5
<PAGE> 9

and resource acquisition, operations and power marketing. Utilizing this
approach, the Company believes that it is able to enhance the value of its
projects by minimizing its cost of production and maximizing its return on
investment.

BACKGROUND

Calpine was founded in 1984 by Peter Cartwright, the Company's President
and Chief Executive Officer. Through 1988, the Company provided engineering,
management, finance and operation and maintenance services to the emerging
independent power production industry. Since 1989, the Company has focused on
the development, acquisition, ownership, operation and maintenance of gas-fired
and geothermal power generation facilities. The Company is an indirect wholly
owned subsidiary of Electrowatt Ltd. ("Electrowatt"), a major utility,
industrial products and engineering services company based in Zurich,
Switzerland. See "Risk Factors -- Control by Electrowatt." Calpine management
currently holds stock options representing approximately 19% of the Company's
Common Stock on a fully diluted basis. Calpine will be the sole and exclusive
obligor under the Senior Notes, and neither Electrowatt nor any of its other
affiliates will have any liability for any payment or other obligations under
the Senior Notes.

In April 1996, the Company entered into an operating lease for the 120
megawatt King City cogeneration facility, which was financed in part with a
$50.0 million preferred stock investment by Electrowatt in the Company (the
"Preferred Stock Investment") and certain short-term borrowings. Such short-term
borrowings were repaid with a portion of the net proceeds from the sale of the
Old Notes. See "Use of Proceeds" and "Business -- Description of
Facilities -- Power Generation Facilities -- King City Facility."

* * *

The Company was incorporated under the laws of the State of California in
1984. The principal executive offices of the Company are located at 50 West San
Fernando Street, San Jose, California 95113, and its telephone number is (408)
995-5115.

RISK FACTORS

See "Risk Factors" for a discussion of certain risks that should be
considered in conjunction with an investment in the Senior Notes.

6
<PAGE> 10

SUMMARY OF THE TERMS OF THE EXCHANGE OFFER

The Exchange Offer......... The Company is offering to exchange $1,000 in
principal amount (and any integral multiple
thereof) of New Notes for each $1,000 in principal
amount (and any integral multiple thereof) of Old
Notes that are validly tendered pursuant to the
Exchange Offer. The Company will issue the New
Notes promptly after the Expiration Date. As of the
date of this Prospectus, $180,000,000 in aggregate
principal amount of Old Notes are outstanding.

Resale..................... The Company believes that the New Notes issued
pursuant to the Exchange Offer generally will be
freely transferable by the holders thereof without
registration or any prospectus delivery requirement
under the Securities Act, except that a "dealer" or
any of the Company's "affiliates," as such terms
are defined under the Securities Act, that
exchanges Old Notes held for its own account may be
required to deliver copies of this Prospectus in
connection with any resale of the New Notes issued
in exchange for such Old Notes. See "The Exchange
Offer -- General" and "Plan of Distribution."

Expiration Date............ The Exchange Offer will expire at 5:00 p.m., New
York City time, on , 1996, unless
extended, in which case the term Expiration Date
means the latest date and time to which the
Exchange Offer is extended. The Company will accept
for exchange any and all Old Notes that are validly
tendered in the Exchange Offer prior to 5:00 p.m.,
New York City time, on the Expiration Date.

Accrued Interest on the New
Notes and the Old
Notes.................... Each New Note will bear interest from the last
Interest Payment Date on which interest was paid on
the Old Notes, or, if interest has not yet been
paid on the Old Notes, from May 16, 1996, the date
of issuance. Such interest will be paid with the
first interest payment on the New Notes.
Accordingly, interest, which has accrued since the
last Interest Payment Date or May 16, 1996 on the
Old Notes accepted for exchange will cease to be
payable upon issuance of the New Notes. Untendered
Old Notes that are not exchanged for New Notes
pursuant to the Exchange Offer will bear interest
at a rate of 10 1/2% per annum after the Expiration
Date.

Termination................ The Company may terminate the Exchange Offer if it
determines that its ability to proceed with the
Exchange Offer could be materially impaired due to
any legal or governmental action, any new law,
statute, rule or regulation or any interpretation
by the staff of the Commission of any existing law,
statute, rule or regulation. Holders of Old Notes
will have certain rights against the Company under
the Registration Rights Agreement should the
Company fail to consummate the Exchange Offer. See
"The Exchange Offer -- Termination." No federal or
state regulatory requirements must be complied with
or approvals obtained in connection with the
Exchange Offer, other than applicable requirements
under federal and state securities laws.

Procedures for Tendering
Old Notes.................. Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile,

7
<PAGE> 11

together with such Old Notes and any other required
documentation to Fleet National Bank, as Exchange
Agent (the "Exchange Agent"), at the address set
forth herein and therein, or effect a tender of Old
Notes pursuant to the procedure for book-entry
transfer as provided for herein. By executing the
Letter of Transmittal, each holder will represent
to the Company that, among other things, the New
Notes acquired pursuant to the Exchange Offer are
being obtained in the ordinary course of business
of the person receiving such New Notes, whether or
not such person is the holder, that neither the
holder nor any such other person has an arrangement
or understanding with any person to participate in
the distribution of such New Notes and, except as
otherwise disclosed in writing to the Company, that
neither the holder nor any such other person is an
"affiliate," as defined in Rule 405 under the
Securities Act, of the Company.

Special Procedures for
Beneficial Owners.......... Any beneficial owner whose Old Notes are registered
in the name of a broker, dealer, commercial bank,
trust company or other nominee and who wishes to
tender such Old Notes in the Exchange Offer should
contact such registered holder promptly and
instruct such registered holder to tender on such
beneficial owner's behalf. If such beneficial owner
wishes to tender on such owner's own behalf, such
owner must, prior to completing and executing the
Letter of Transmittal and delivering such owner's
Old Notes, either make appropriate arrangements to
register ownership of the Old Notes in such owner's
name or obtain a properly completed bond power from
the registered holder. The transfer of record
ownership may take considerable time and may not be
able to be completed prior to the Expiration Date.

Guaranteed Delivery
Procedures............... Holders of Old Notes who wish to tender their Old
Notes and whose Old Notes are not immediately
available or who cannot deliver their Old Notes,
the Letter of Transmittal or any other documents
required by the Letter of Transmittal to the
Exchange Agent prior to the Expiration Date must
tender their Old Notes according to the guaranteed
delivery procedures set forth in "The Exchange
Offer -- Guaranteed Delivery Procedures."

Withdrawal Rights.......... Tenders of Old Notes may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the
Expiration Date.

Acceptance of Old Notes and
Delivery of New Notes.... Subject to certain conditions (as summarized above
in "Termination" and described more fully in "The
Exchange Offer -- Termination"), the Company will
accept for exchange any and all Old Notes that are
validly tendered in the Exchange Offer prior to
5:00 p.m., New York City time, on the Expiration
Date. The New Notes issued pursuant to the Exchange
Offer will be delivered promptly following the
Expiration Date. See "The Exchange
Offer -- General."

Certain Federal Income Tax
Considerations........... The exchange pursuant to the Exchange Offer will
generally not be a taxable event for federal income
tax purposes. For a discussion of certain federal
income tax considerations relating to the exchange
of the Old

8
<PAGE> 12

Notes for the New Notes, see "Certain Federal
Income Tax Considerations."

Exchange Agent............. The Trustee is also the Exchange Agent. The mailing
address of the Exchange Agent and address for
deliveries by overnight courier is: Fleet National
Bank, Corporate Trust Operations, 777 Main Street,
Lower Level, CTMO 0224, Hartford, Connecticut
06115, Attention: Patricia Williams. Hand
deliveries should be made to Fleet National Bank,
Corporate Trust Operations, 777 Main Street, Lower
Level, Hartford, Connecticut 06115, Attention:
Patricia Williams. For information with respect to
the Exchange Offer, the telephone number for the
Exchange Agent is (860) 986-2910 and the facsimile
number for the Exchange Agent is (860) 986-7908.

Use of Proceeds............ There will be no cash proceeds payable to the
Company from the issuance of the New Notes pursuant
to the Exchange Offer. Of the approximately $174.6
million of net proceeds received by the Company
from the sale of the Old Notes, approximately
$155.7 million was used to repay outstanding
indebtedness of the Company and one of its
subsidiaries and approximately $18.9 million was
used for general corporate purposes. See "Use of
Proceeds."

9
<PAGE> 13

SUMMARY OF THE TERMS OF THE NEW NOTES

The Exchange Offer applies to an aggregate principal amount of $180,000,000
of the Old Notes. The form and terms of the New Notes will be the same as the
form and terms of the Old Notes except that the New Notes will not bear legends
restricting the transfer thereof. The New Notes will be obligations of the
Company entitled to the benefits of the Indenture. See "Description of the New
Notes."

<TABLE>
<S> <C>
Notes Offered........................ $180,000,000 aggregate principal amount of 10 1/2%
Senior Notes Due 2006 (the "New Notes").
Maturity............................. May 15, 2006.
Interest............................. Payable semi-annually at the rate of 10 1/2% per
annum, in cash, on May 15 and November 15, commencing
on the first Interest Payment Date following the
consummation of the Exchange Offer.
Optional Redemption by the Company... The New Notes will be redeemable at the option of the
Company on or after May 15, 2001 at the redemption
prices set forth herein, plus accrued interest. In
addition, up to $63.0 million aggregate principal
amount of New Notes will be redeemable from the
proceeds of one or more Public Equity Offerings (as
defined herein) following which there is a Public
Market (as defined herein), in each case at the option
of the Company, in whole or in part, at the redemption
prices set forth herein, plus accrued interest. See
"Description of New Notes -- Optional Redemption."
Ranking.............................. The New Notes will be senior unsecured obligations of
the Company and will rank pari passu in right of
payment with all other existing and future Senior
Indebtedness (as defined herein) of the Company and
senior in right of payment to all Subordinated
Indebtedness (as defined herein) of the Company, if
any, issued in the future. The New Notes will be
effectively subordinated to all liabilities of the
Company's subsidiaries, including trade payables. See
"Risk Factors -- High Leverage," "Risk
Factors -- Risks Related to Holding Company Structure"
and "Description of New Notes -- Ranking."
Negative Covenants................... The Indenture (as defined herein) will limit, among
other things, (i) the incurrence of additional debt by
the Company and its subsidiaries, (ii) the payment of
dividends on and redemptions of capital stock by the
Company and its subsidiaries, (iii) the use of
proceeds from the sale of assets and subsidiary stock,
(iv) transactions with affiliates, (v) the creation of
liens and (vi) sale leaseback transactions. The
Indenture will also restrict the Company's ability to
consolidate or merge with or into, or to transfer all
or substantially all of its assets to, another person.
However, these limitations are subject to a number of
important qualifications and exceptions. See
"Description of New Notes -- Covenants."
Change of Control.................... Upon a Change of Control Triggering Event (as defined
herein), the Company will be required to make an offer
to purchase the New Notes then outstanding at a
purchase price equal to 101% of the principal amount
thereof, plus accrued interest. See "Risk
Factors -- High Leverage," "Risk Factors -- Control by
Electrowatt" and "Description of New
Notes -- Covenants -- Change of Control."
</TABLE>

10
<PAGE> 14
<TABLE>
<S> <C>
Registration Requirements............ Pursuant to the Registration Rights Agreement, the
Company is obligated to consummate the Exchange Offer
or cause resales of the Old Notes to be registered
under the Securities Act, and, if one of such events
does not occur prior to 180 days after May 16, 1996,
the rate of interest on the Old Notes will permanently
increase by one-half of one percent per annum. Any Old
Notes remaining outstanding following a consummation
of the Exchange Offer will be treated together with
the New Notes as one series for purposes of the
Indenture. Holders of Senior Notes who do not
participate in the Exchange Offer may thereafter hold
a less liquid security. See "Description of New
Notes -- Registration Rights."
</TABLE>

11
<PAGE> 15

SUMMARY CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------------------------------- ------------------------------------
1991 1992 1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ------------------------- -------- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRO FORMA(1)
ACTUAL ------------ ACTUAL PRO FORMA(9)
---------- -------- -------------
(DOLLARS IN THOUSANDS)
STATEMENT
OF
OPERATIONS
DATA:
Total
revenue... $ 39,052 $ 39,577 $ 69,915 $ 94,762 $ 132,098 $ 188,040 $ 22,010 $ 31,673 $36,630
Cost of
revenue... 25,064 25,921 42,501 52,845 77,388 122,993 13,392 21,329 28,338
Gross
profit... 13,988 13,656 27,414 41,917 54,710 65,047 8,618 10,344 8,292
Project
development
expenses... 1,067 806 1,280 1,784 3,087 3,087 501 516 516
General
and
administrative
expenses... 3,443 3,924 5,080 7,323 8,937 8,937 1,545 2,640 2,640
Compensation
expense
related to
stock
options... -- 1,224(2) -- -- -- -- -- -- --
Provision
for
write-off
of
project
development
costs... -- 800(3) -- 1,038(3) -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ------------ -------- -------- ------
Income
from
operations... 9,478 6,902 21,054 31,772 42,686 53,023 6,572 7,188 5,136
Interest
expense... 1,925 1,225 13,825 23,886 32,154 48,355 6,931 8,219 11,752
Other
income,
net..... (416) (310) (1,133) (1,988) (1,895) (9,158) (459) (533) (2,323)
Net
income... $ 5,958 $ 3,460 $ 3,754 $ 6,021 $ 7,378 $ 8,210 $ 59 $ (294) $(2,534)
OTHER
FINANCIAL
DATA AND
RATIOS:
Depreciation
and
amortization... $ 219 $ 232 $ 12,540 $ 21,580 $ 26,896 $ 37,244 $ 5,179 $ 6,866 $ 8,966
EBITDA(4)... $ 4,909 $ 9,898 $ 42,370 $ 53,707 $ 69,515 $ 101,364 $ 12,196 $ 13,340 $16,020
EBITDA to
Consolidated
Interest
Expense(5)... 2.55x 4.73x 2.98x 2.23x 2.11x 1.91x
Total debt
to
EBITDA... 5.87x 3.70x 6.24x 6.23x 5.87x 5.04x
Ratio of
earnings
to fixed
charges(6)... 2.28x 3.41x 2.09x 1.52x 1.46x 1.31x
SELECTED
OPERATING
INFORMATION(7):
Power
plants:
Electricity
revenue:
Energy... $ 33,426 $ 38,325 $ 37,088 $ 45,912 $ 54,886 $ 80,255 $ 11,140 $ 15,339 $19,143
Capacity... $ 7,562 $ 7,707 $ 7,834 $ 7,967 $ 30,485 $ 58,116 380 1,566 2,719
Megawatt
hours
produced... 392,471 403,274 378,035 447,177 1,033,566 1,859,277 96,406 330,675 424,658
Average
energy
price
per
kilowatt
hour(8)... 8.517c 9.503c 9.811c 10.267c 5.310c 4.317c 11.555c 4.639c 4,508c
Steam
fields:
Steam
revenue:
Calpine... $ 36,173 $ 33,385 $ 31,066 $ 32,631 $ 39,669 $ 39,669 9,583 8,870 8,870
Other
interest... $ 2,820 $ 2,501 $ 2,143 $ 2,051 -- -- -- -- --
Megawatt
hours
produced... 2,095,576 2,105,345 2,014,758 2,156,492 2,415,059 2,415,059 468,526 556,039 556,039
Average
price
per
kilowatt
hour... 1.861c 1.705c 1.648c 1.608c 1.643c 1.643c 2.045c 1.595c 1.595c
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------------------------------
1991 1992 1993 1994
------- -------- -------- --------
AS OF
MARCH 31, 1996
1995 ------------------------
----------------------- PRO FORMA(9)
PRO FORMA(1) ACTUAL -------------
ACTUAL ------------ --------
--------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....... $ 958 $ 2,160 $ 6,166 $ 22,527 $ 21,810 $ 61,278 $ 68,647 $ 45,815
Total assets.................... 41,245 55,370 302,256 421,372 554,531 790,231 605,349 778,749
Short-term debt................. 2,657 1,200 17,200 27,300 85,885 28,885 84,815 27,815
Long-term line of credit........ 24,967 35,467 52,595 -- 19,851 -- 32,151 --
Non-recourse debt............... -- -- 194,746 196,806 190,642 190,642 185,798 185,798
Notes payable................... 1,200.. -- -- 5,296 6,348 6,348 6,473 6,473
Senior Notes Due 2004........... -- -- -- 105,000 105,000 105,000 105,000 105,000
Senior Notes Due 2006........... -- -- -- -- -- 180,000 -- 180,000
Total debt...................... 28,824 36,667 264,541 334,402 407,726 510,875 414,237 505,086
Shareholder's equity............ 6,621 10,505 13,429 18,649 25,227 75,227 74,933 74,933
(See footnotes on next page)
</TABLE>

12
<PAGE> 16

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

(1) The pro forma information presented under statement of operations data and
other financial data and ratios for the year ended December 31, 1995 gives
effect to the following transactions as if such transactions had occurred
on January 1, 1995: (i) the acquisition by the Company of the Greenleaf 1
and 2 Facilities (the "Greenleaf Transaction"); (ii) the acquisition by the
Company of the lease for the Watsonville Facility (the "Watsonville
Transaction"); (iii) the entry by the Company into the agreements in
respect of the Cerro Prieto Facility (the "Cerro Prieto Transaction"); (iv)
the entry by the Company into a transaction involving a lease for the King
City Facility (the "King City Transaction") (the Greenleaf Transaction, the
Watsonville Transaction, the Cerro Prieto Transaction and the King City
Transaction being collectively referred to as the "Transactions"); (v) the
$50.0 million Preferred Stock investment in Calpine by Electrowatt (the
"Preferred Stock Investment") and the application of the proceeds therefrom
as described under "-- Background" and (vi) the sale of the Old Notes and
the application of the net proceeds therefrom as described under "Use of
Proceeds." The pro forma information presented under selected operating
information gives effect to the Greenleaf Transaction, the Watsonville
Transaction and the King City Transaction as if such transactions had
occurred on January 1, 1995. The pro forma information presented under
balance sheet data gives effect to the King City Transaction, the Preferred
Stock Investment and the application of the proceeds therefrom, and the
sale of the Old Notes and the application of the net proceeds therefrom, as
if such transactions had occurred on December 31, 1995. See "Pro Forma
Consolidated Financial Data."

(2) Represents a non-cash charge for compensation expense associated with the
grant of certain options under the Company's Stock Option Program. See
"Executive Compensation -- Stock Option Program."

(3) Represents a write-off of certain capitalized project costs.

(4) EBITDA is defined as income from operations plus depreciation, capitalized
interest, other income, non-cash charges and cash received from investments
in power projects, reduced by the income from unconsolidated investments in
power projects. See "Description of Senior Notes -- Certain Definitions."
EBITDA is presented not as a measure of operating results but rather as a
measure of the Company's ability to service debt. EBITDA should not be
construed as an alternative either (i) to income from operations
(determined in accordance with generally accepted accounting principles) or
(ii) to cash flows from operating activities (determined in accordance with
generally accepted accounting principles).

(5) Consolidated Interest Expense is defined as total interest expense plus
one-third of all operating lease obligations, capitalized interest,
dividends paid in respect of preferred stock and cash contributions to any
employee stock ownership plan used to pay interest on loans incurred to
purchase capital stock of the Company. See "Description of Senior
Notes -- Certain Definitions." The pro forma EBITDA to Consolidated
Interest Expense ratio presented gives effect to the sale of the Old Notes
and the application of the net proceeds therefrom as if such transaction
had occurred on January 1, 1995. For purposes of the "Limitation on
Incurrence of Indebtedness" covenant under the Indenture, such ratio was
calculated as if such transaction had occurred on April 1, 1995 and did not
give effect to the portion of the Old Notes incurred pursuant to
refinancing and other permitted exceptions thereto. Under such method of
calculation, such ratio would have been 2.02x for the twelve-month period
ended March 31, 1996.

(6) Earnings are defined as income before provision for taxes, extraordinary
item and cumulative effect of changes in accounting principle plus cash
received from investments in power projects and fixed charges reduced by
the equity in income from investments in power projects and capitalized
interest. Fixed charges consist of interest expense, capitalized interest,
amortization of debt issuance costs and the portion of rental expenses
representative of the interest expense component.

(7) For an explanation of such selected operating information, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Selected Operating Information."

(8) Represents energy revenue divided by the megawatt hours produced.

(9) The pro forma information presented under statement of operations data and
other financial data and ratios for the three months ended March 31, 1996
gives effect to the following transactions as if such transactions had
occurred on January 1, 1996: (i) the King City Transaction; and (ii) the
sale of the Old Notes and the application of the net proceeds therefrom as
described under "Use of Proceeds". The pro forma information presented
under balance sheet data gives effect to the King City Transaction and the
sale of the Old Notes and the application of the net proceeds therefrom as
described under "Use of Proceeds" as if such transactions had occurred on
March 31, 1996. See "Pro Forma Consolidated Financial Data."

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

This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors."

13
<PAGE> 17

RISK FACTORS

Prospective purchasers of the New Notes should carefully consider the
factors set forth below, as well as the other information contained in this
Prospectus, in evaluating an investment in the New Notes.

HIGH LEVERAGE

The Company is highly leveraged as a result of outstanding indebtedness of
the Company and non-recourse debt financing of certain of the Company's
subsidiaries incurred to finance the acquisition and development of power
generation facilities. As of March 31, 1996, the Company's total consolidated
indebtedness was $414.2 million, its total consolidated assets were $605.3
million and its shareholder's equity was $74.9 million. At such date, on a pro
forma basis after giving effect to the King City Transaction and the sale of the
Old Notes and the application of the proceeds therefrom, the Company's total
consolidated indebtedness would have been $505.1 million, its total consolidated
assets would have been $778.7 million and its shareholder's equity would have
been $74.9 million. See "Capitalization," "Pro Forma Consolidated Financial
Data" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations." The ability of the Company to meet its debt service
obligations and to repay outstanding indebtedness according to its terms will be
dependent primarily upon the future performance of the power generation
facilities in which the Company has, or in the future may have, an interest.

The Indenture to be dated as of May 16, 1996 (the "Indenture") relating to
the Senior Notes and the Indenture dated as of February 17, 1994 (the "9 1/4%
Indenture") relating to the Company's 9 1/4% Senior Notes Due 2004 (the "9 1/4%
Senior Notes") (collectively, the "Indentures") contain certain restrictive
covenants. Such restrictions will affect, and in many respects will
significantly limit or prohibit, among other things, the ability of the Company
or its subsidiaries or such other entities, as the case may be, to incur
indebtedness, make prepayments of certain indebtedness, pay dividends, make
investments, engage in transactions with affiliates, create liens, sell assets
and engage in mergers and consolidations. The Indentures also contain provisions
that require the Company, in the event of a Change of Control Triggering Event
(as defined herein), to make an offer to purchase the Senior Notes and the
9 1/4% Senior Notes. There can be no assurance that the Company will have the
financial resources necessary to purchase the Senior Notes and the 9 1/4% Senior
Notes upon a Change of Control. Such Change of Control provisions contained in
the Indentures may not be waived by the Board of Directors of the Company. See
"-- Control by Electrowatt," "Description of Senior Notes" and "Description of
Certain Other Indebtedness."

The Company believes that, based on current levels of operations and
anticipated growth, cash flow from operations, together with other available
sources of funds, including borrowings under the Company's existing borrowing
arrangements, will be adequate to make required payments of principal and
interest on the Company's debt, including the Senior Notes and the 9 1/4% Senior
Notes, and to enable the Company to comply with the terms of its debt
agreements, although there can be no assurance that this will be the case. If
the Company is unable to comply with the terms of its debt agreements and fails
to generate sufficient cash flow from operations in the future, the Company may
be required to refinance all or a portion of its existing debt or to obtain
additional financing. There can be no assurance that any such refinancing would
be possible or that any additional financing could be obtained, particularly in
view of the Company's high levels of debt and the debt incurrence restrictions
under existing debt agreements. If cash flow is insufficient and no such
refinancing or additional financing is available, the Company may be forced to
default on its debt obligations. In the event of a default under the terms of
any of the indebtedness of the Company, subject to the terms of such
indebtedness, the obligees thereunder would be permitted to accelerate the
maturity of such obligations, which could cause defaults under other obligations
of the Company. See "-- Risks Related to Holding Company Structure,"
"-- Possible Unavailability of Project Financing," "-- Control by Electrowatt,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Certain Transactions."

RISKS RELATED TO HOLDING COMPANY STRUCTURE

The Senior Notes will be exclusively the obligations of Calpine and not of
any of its subsidiaries or other affiliates. Because the operations of the
Company are conducted primarily by its subsidiaries and other

14
<PAGE> 18

affiliates, the Company's cash flow and its ability to service its indebtedness,
including its ability to pay the interest on and principal of the Senior Notes,
are almost entirely dependent upon the earnings of its subsidiaries and other
affiliates and the distribution of those earnings to the Company. The
non-recourse debt agreements of certain of the Company's subsidiaries and other
affiliates generally restrict their ability to pay dividends, make distributions
or otherwise transfer funds to the Company. The restrictions in such agreements
generally require that, prior to the payment of dividends, distributions or
other transfers, the subsidiary or other affiliate proposing to make the
distribution must provide for the payment of other obligations, including
operating expenses, debt service and reserves. Calpine's subsidiaries and other
affiliates are separate and distinct legal entities and have no obligation,
contingent or otherwise, to pay any amounts due on the Senior Notes or to make
any funds available therefor, whether by dividends, loans or other payments, and
do not guarantee the payment of interest on or principal of the Senior Notes.
Any right of Calpine to receive any assets of any of its subsidiaries or other
affiliates upon any liquidation or reorganization of Calpine (and the consequent
right of the holders of the Senior Notes to participate in the distribution of,
or to realize proceeds from, those assets) will be effectively subordinated to
the claims of any such subsidiaries' or other affiliates' creditors (including
trade creditors and holders of debt issued by such subsidiaries or affiliates).
After giving pro forma effect to the King City Transaction and the issuance of
the Old Notes, as of March 31, 1996, approximately $212.6 million of
indebtedness of certain of the Company's subsidiaries would be effectively
senior to the Senior Notes, substantially all of which represents non-recourse
project financing secured by the assets of such subsidiaries.

While the Indentures impose limitations on the ability of the Company and
its subsidiaries to incur additional indebtedness, the Indentures do not limit
the amount of non-recourse debt that the Company's subsidiaries may incur to
finance new facilities. See "Description of New
Notes -- Covenants -- Limitations on Incurrence of Indebtedness."

GENERAL OPERATING RISKS

The Company currently operates all of the power generation facilities in
which it has an interest, except for two steam fields. See
"Business -- Description of Facilities." The continued operation of power
generation facilities and steam fields involves many risks, including the
breakdown or failure of power generation equipment, transmission lines,
pipelines or other equipment or processes and performance below expected levels
of output or efficiency. To date, the Company's power generation facilities have
operated at an average availability in excess of 96%, and although from time to
time the Company's power generation facilities and steam fields have experienced
certain equipment breakdowns or failures, such breakdowns or failures have not
had a material adverse effect on the operation of such facilities or on the
Company's results of operations. Although the Company's facilities contain
certain redundancies and back-up mechanisms, there can be no assurance that any
such breakdown or failure would not prevent the affected facility or steam field
from performing under applicable power and/or steam sales agreements. In
addition, although insurance is maintained to protect against certain of these
operating risks, the proceeds of such insurance may not be adequate to cover
lost revenues or increased expenses, and, as a result, the entity owning such
power generation facility or steam field may be unable to service principal and
interest payments under its financing obligations and may operate at a loss. A
default under such a financing obligation could result in the Company losing its
interest in such power generation facility or steam field. See "-- Possible
Unavailability of Project Financing."

RISKS RELATED TO THE DEVELOPMENT AND OPERATION OF GEOTHERMAL ENERGY RESOURCES

The development and operation of geothermal energy resources are subject to
substantial risks and uncertainties similar to those experienced in the
development of oil and gas resources. The successful exploitation of a
geothermal energy resource ultimately depends upon the heat content of the
extractable fluids, the geology of the reservoir, the total amount of
recoverable reserves and operational factors relating to the extraction of
fluids, including operating expenses, energy price levels and capital
expenditure requirements relating primarily to the drilling of new wells. In
connection with the development of a project, the Company estimates the
productivity of the geothermal resource and the expected decline in such
productivity. The

15
<PAGE> 19

productivity of a geothermal resource may decline more than anticipated,
resulting in insufficient recoverable reserves being available for sustained
generation of the electrical power capacity desired. An incorrect estimate by
the Company or an unexpected decline in productivity could have a material
adverse effect on the Company's results of operations.

Geothermal reservoirs are highly complex, and, as a result, there exist
numerous uncertainties in determining the extent of the reservoirs and the
quantity and productivity of the steam reserves. Reservoir engineering is an
inexact process of estimating underground accumulations of steam or fluids that
cannot be measured in any precise way, and depends significantly on the quantity
and accuracy of available data. As a result, the estimates of other reservoir
specialists may differ materially from those of the Company. Estimates of
reserves are generally revised over time on the basis of the results of
drilling, testing and production that occur after the original estimate was
prepared. While the Company has extensive experience in the operation and
development of geothermal energy resources and in preparing such estimates,
there can be no assurance that the Company will be able to successfully manage
the development and operation of its geothermal reservoirs or that the Company
will accurately estimate the quantity or productivity of its steam reserves.

IMPACT OF AVOIDED COST PRICING; ENERGY PRICE FLUCTUATIONS

Eight of the existing power plants in which the Company has an interest
sell electricity to Pacific Gas & Electric Company ("PG&E") under separate
long-term power sales agreements. Each of these agreements provides for both
capacity payments and energy payments for the term of the agreement. During the
initial ten-year period of certain of the agreements, PG&E pays a fixed price
for each unit of electrical energy according to schedules set forth in such
agreements. The fixed price periods under these power sales agreements expire at
various times in 1998 through 2000. After the fixed price periods expire, while
the basis for the capacity and capacity bonus payments under these power sales
agreements remains the same, the energy payments adjust to PG&E's then
prevailing avoided cost of energy, which is determined and published from time
to time by the California Public Utilities Commission ("CPUC"). The term
"avoided cost" refers to the incremental costs that an electric utility would
incur to produce or purchase an amount of power equivalent to that purchased
from qualifying facilities (as defined under the Public Utility Regulatory
Policies Act of 1978, as amended ("PURPA")). The currently prevailing avoided
cost of energy is substantially lower than the fixed energy prices under these
power sales agreements and is generally expected to remain so. While avoided
cost does not affect capacity payments under the power sales agreements, in the
event that the avoided cost of energy does not increase significantly, the
Company's energy revenues under these power sales agreements would be materially
reduced at the expiration of the fixed price period. Such reduction could have a
material adverse effect on the Company's results of operations. The Company
cannot accurately predict the likely level of avoided cost energy prices at the
expiration of the fixed price periods. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- General" and "Business --
Description of Facilities." Prices paid for the steam delivered by the Company's
steam fields are based on a formula that partially reflects the price levels of
nuclear and fossil fuels, and, therefore, a reduction in the price levels of
such fuels may reduce revenues under the steam sales agreements for the steam
fields. See "Business -- Description of Facilities -- Steam Fields."

IMPACT OF CURTAILMENT

Each of the Company's power and steam sales agreements contains curtailment
provisions pursuant to which the purchasers of energy or steam are entitled to
reduce the number of hours of energy or amount of steam purchased thereunder.
Curtailment provisions are customary in power and steam sales agreements. During
1995, certain of the Company's power generation facilities experienced maximum
curtailment primarily as a result of low gas prices and a high degree of
precipitation during the period, which resulted in higher levels of energy
generation by hydroelectric power facilities that supply electricity. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." In limited circumstances, energy production from third party
geothermal power plants may be curtailed, which would reduce deliveries of steam
by the Company under the steam sales agreements. The Company expects maximum
curtailment during 1996 under its power and steam sales agreements for certain
of its facilities, and there can be no assurance that the

16
<PAGE> 20

Company will not experience curtailment in the future. In the event of such
curtailment, the Company's results of operations may be materially adversely
affected. See "Business -- Description of Facilities."

PROJECT DEVELOPMENT RISKS

The development of power generation facilities is subject to substantial
risks. In connection with the development of a power generation facility, the
Company must generally obtain power and/or steam sales agreements, governmental
permits and approvals, fuel supply and transportation agreements, sufficient
equity capital and debt financing, electrical transmission agreements, site
agreements and construction contracts, and there can be no assurance that the
Company will be successful in doing so. In addition, project development is
subject to certain environmental, engineering and construction risks relating to
cost-overruns, delays and performance. Although the Company attempts to minimize
the financial risks in the development of a project by securing a favorable
long-term power sales agreement, obtaining all required governmental permits and
approvals and arranging adequate financing prior to the commencement of
construction, the development of a power project may require the Company to
expend significant sums for preliminary engineering, permitting and legal and
other expenses before it can be determined whether a project is feasible,
economically attractive or financeable. If the Company were unable to complete a
facility, it would generally not be able to recover its investment in such a
facility.

The process for obtaining initial environmental, siting and other
governmental permits and approvals is complicated and lengthy, often taking more
than one year, and is subject to significant uncertainties. As a result of
competition, it may be difficult to obtain a power sales agreement for a
proposed project, and the prices offered in new power sales agreements for both
electric capacity and energy may be less than the prices in prior agreements.

Each power generation facility developed by the Company will require
substantial capital investment. The Company's ability to arrange financing and
the cost of such financing are dependent upon numerous factors, including
general economic and capital market conditions, conditions in energy markets,
regulatory developments, credit availability from banks or other lenders,
investor confidence in the industry and the Company, the continued success of
the Company's current facilities, and provisions of tax and securities laws that
are conducive to raising capital. There can be no assurance that financing for
new facilities will be available to the Company on acceptable terms in the
future. In addition, there can be no assurance that all required permits and
approvals for the Company's facilities will be obtained, that the Company will
be able to obtain favorable power sales agreements and adequate financing, or
that the Company will be successful in the development of power generation
facilities in the future. Historically, the Company has been successful in
obtaining debt financing for its facilities and has relied on Electrowatt, the
Company's sole shareholder, to provide funding for a substantial portion of its
facility equity commitments. The Company currently has an existing $58.0 million
credit facility with Credit Suisse (the "Credit Suisse Credit Facility"), which
was arranged for the Company by Electrowatt. CS Holding, a Swiss corporation,
holds approximately 44.9% of the outstanding shares of Electrowatt and 100% of
the outstanding shares of Credit Suisse. See "Certain Transactions." As of March
31, 1996, on a pro forma basis after giving effect to the King City Transaction,
the Company had borrowings of approximately $45.4 million outstanding under the
Credit Suisse Credit Facility, all of which was repaid with a portion of the net
proceeds from the sale of the Old Notes. See "-- Control by Electrowatt," "Use
of Proceeds" and "Business -- Project Development and Acquisition."

START-UP RISKS

The commencement of operation of a newly constructed power plant involves
many risks, including start-up problems, the breakdown or failure of equipment
or processes and performance below expected levels of output or efficiency. New
plants have no operating history and may employ recently developed and
technologically complex equipment. Insurance is maintained to protect against
certain of these risks, warranties are generally obtained for limited periods
relating to the construction of each project and its equipment in varying
degrees, and contractors and equipment suppliers are obligated to meet certain
performance levels. Such insurance, warranties or performance guarantees may not
be adequate to cover lost revenues or increased expenses and, as a result, a
project may be unable to fund principal and interest

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payments under its financing obligations and may operate at a loss. A default
under such a financing obligation could result in the Company losing its
interest in such power generation facility or steam field. See "-- Possible
Unavailability of Project Financing."

In addition, power sales agreements, which are typically entered into with
a utility early in the development phase of a project, often enable the utility
to terminate such agreement, or to retain security posted as liquidated damages,
in the event that a project fails to achieve commercial operation or certain
operating levels by specified dates or fails to make certain specified payments.
In the event such a termination right is exercised, a project may not commence
generating revenues, the default provisions in a financing agreement may be
triggered (rendering such debt immediately due and payable) and the project may
be rendered insolvent as a result.

POSSIBLE UNAVAILABILITY OF PROJECT FINANCING

The Company's power generation facilities have been financed using a
variety of leveraged financing structures, primarily consisting of non-recourse
debt and lease obligations. As of March 31, 1996, on a pro forma basis after
giving effect to the King City Transaction and the sale of the Old Notes, the
Company would have had approximately $505.1 million of total consolidated
indebtedness, of which approximately 42% would have represented non-recourse
subsidiary debt. See "Pro Forma Consolidated Financial Data." Each non-recourse
debt and lease obligation is structured to be fully paid out of cash flow
provided by the facility or facilities, the assets of which (together with
pledges of stock or partnership interests in the entity owning the facility)
collateralize such obligations, without any claim against the Company's general
corporate funds. Such leveraged financing permits the development of larger
facilities, but also increases the risk to the Company that its interest in a
particular facility could be impaired or that fluctuations in revenues could
adversely affect the Company's ability to meet its lease or debt obligations.
The significant debt collateralized by the interests of the Company in each
operating facility reduces the liquidity of such assets since any sale or
transfer of a facility would be subject both to the lien securing the facility
indebtedness and to transfer restrictions in the financing agreements. While the
Company intends to utilize non-recourse or lease financing when appropriate,
there can be no assurance that market conditions and other factors will permit
the same limited equity investment by the Company or the same substantially
non-recourse nature of financings for future facilities. In the event of a
default under a financing agreement, and assuming the Company or the other
equity investors in a facility are unable or choose not to cure such default
within applicable cure periods, if any, the lenders or lessors would generally
have rights to the facility, any related geothermal resource or natural gas
reserves, related contracts and cash flows and all licenses and permits
necessary to operate the facility. In the event of foreclosure after such a
default, the Company might not retain any interest in such facility. The Company
does not believe the existence of non-recourse or lease financing will
materially affect its ability to continue to borrow funds in the future in order
to finance new facilities. There can be no assurance, however, that the Company
will continue to be able to obtain the financing required to develop its power
facilities on terms satisfactory to the Company. See "Business -- Description of
Facilities" and "-- Project Development and Acquisition."

The Company has from time to time guaranteed certain obligations of its
subsidiaries and other affiliates. There can be no assurance that, in respect of
any financings of facilities in the future, lenders or lessors will not require
the Company to guarantee the indebtedness of such future facilities, rendering
the Company's general corporate funds vulnerable in the event of a default by
such facility or related subsidiary. If the lenders or lessors were to require
such guarantees, and the Company were unable to incur indebtedness in respect of
such guarantees under the restrictions on indebtedness (including guarantees)
contained in the Indentures, the Company's ability to fund new facilities could
be adversely affected. The Indentures do not limit the ability of the Company's
subsidiaries to incur non-recourse or lease financing for investment in new
facilities.

Calpine Geysers Company, L.P. ("CGC"), a wholly owned subsidiary of
Calpine, owns the West Ford Flat Facility, the Bear Canyon Facility, the PG&E
Unit 13 and Unit 16 Steam Fields and the SMUDGEO #1 Steam Fields. In addition,
Calpine Greenleaf Corporation ("Calpine Greenleaf"), a wholly owned subsidiary
of Calpine, owns the Greenleaf 1 and 2 Facilities. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- General" and
"Business -- Description of Facilities." The non-

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<PAGE> 22

recourse facility financing of each of CGC and Calpine Greenleaf is
collateralized by all of the assets and properties of each of the facilities and
steam fields owned by such subsidiary. In the event of a reduction in revenue
derived from one or more of these facilities or steam fields which results in a
failure to make any payments on, or if such subsidiary otherwise defaults in its
obligations under the terms of, its non-recourse project financing, the lenders
would be entitled to foreclose on all of the assets of such subsidiary,
including the assets pertaining to each such facility and steam field.

DEPENDENCE ON THIRD PARTIES

The nature of the Company's power generation facilities is such that each
facility generally relies on one power or steam sales agreement with a single
electric utility customer for substantially all, if not all, of such facility's
revenue over the life of the project. During 1995, approximately 87% and 9% of
the Company's revenue was attributable to revenue received pursuant to power and
steam sales agreements with PG&E and Sacramento Municipal Utility District
("SMUD"), respectively. The power and steam sales agreements are generally
long-term agreements, covering the sale of electricity or steam for initial
terms of 20 or 30 years. However, the loss of any one power or steam sales
agreement with any of these customers could have a material adverse effect on
the Company's results of operations. In addition, any material failure by any of
the parties to a power or steam sales agreement to fulfill its obligations
thereunder could have a material adverse effect on the cash flow available to
the Company and, as a result, on the Company's results of operations. During
1995, an additional 4% of the Company's revenue was attributable to operating
and maintenance services performed by the Company for power generation
facilities that sell electricity to PG&E.

Furthermore, each power generation facility may depend on a single or
limited number of entities to purchase thermal energy, or to supply or transport
natural gas to such facility. The failure of any one utility customer, steam
host, gas supplier or gas transporter to fulfill its contractual obligations
could have a material adverse effect on a power project and on the Company's
business and results of operations.

INTERNATIONAL INVESTMENTS

The Company has made an investment in the Cerro Prieto geothermal steam
fields located in Mexico and intends to pursue investments primarily in Latin
America and Southeast Asia. Such investments are subject to risks and
uncertainties relating to the political, social and economic structures of those
countries. Risks specifically related to investments in non-United States
projects may include risks of fluctuations in currency valuation, currency
inconvertibility, expropriation and confiscatory taxation, increased regulation
and approval requirements and governmental policies limiting returns to foreign
investors.

POWER MARKETING BUSINESS

It is part of the Company's strategy to form an integrated nationwide power
marketing business to market power generated both by the Company's generation
facilities and power generated by third parties. Management of the Company
believes that this strategy will enhance the earning potential of its operating
assets, generate additional revenue and expand its customer base. However, the
power marketing industry is only in its early stages of development, and there
are no assurances that the industry will develop in such a way as to permit the
Company to achieve these goals. Furthermore, the Company has only recently begun
to start up its power marketing business, and there can be no assurance that its
power marketing strategy will be successful or that management's goals will be
achieved.

GOVERNMENT REGULATION

The Company's activities are subject to complex and stringent energy,
environmental and other governmental laws and regulations. The construction and
operation of power generation facilities require numerous permits, approvals and
certificates from appropriate federal, state and local governmental agencies, as
well as compliance with environmental protection legislation and other
regulations. While the Company believes that it has obtained the requisite
approvals for its existing operations and that its business is operated in
accordance with applicable laws, the Company remains subject to a varied and
complex body of laws and

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regulations that both public officials and private individuals may seek to
enforce. There can be no assurance that existing laws and regulations will not
be revised or that new laws and regulations will not be adopted or become
applicable to the Company that may have a material adverse effect on the
Company's business or results of operations, nor can there be any assurance that
the Company will be able to obtain all necessary licenses, permits, approvals
and certificates for proposed projects or that completed facilities will comply
with all applicable permit conditions, statutes or regulations. In addition,
regulatory compliance for the construction of new facilities is a costly and
time consuming process, and intricate and changing environmental and other
regulatory requirements may necessitate substantial expenditures to obtain
permits and may create a significant risk of expensive delays or significant
loss of value in a project if the project is unable to function as planned due
to changing requirements or local opposition. See "Business -- Government
Regulation."

The Company's operations are subject to the provisions of various energy
laws and regulations, including PURPA, the Public Utility Holding Company Act of
1935, as amended ("PUHCA"), and state and local regulations. See
"Business -- Government Regulation." PUHCA provides for the extensive regulation
of public utility holding companies and their subsidiaries. PURPA provides to
qualifying facilities ("QFs") and owners of QFs certain exemptions from certain
federal and state regulations, including rate and financial regulations.

Under present federal law, the Company is not and will not be subject to
regulation as a holding company under PUHCA as long as the power plants in which
it has an interest are QFs under PURPA or are subject to another exemption. In
order to be a QF, a facility must be not more than 50% owned by an electric
utility or electric utility holding company. A QF that is a cogeneration
facility must produce not only electricity, but also useful thermal energy for
use in an industrial or commercial process or heating or cooling applications in
certain proportions to the facility's total energy output, and it must meet
certain energy efficiency standards. Therefore, loss of a thermal energy
customer could jeopardize a cogeneration facility's QF status. All geothermal
power plants up to 80 megawatts that meet PURPA's ownership requirements and
certain other standards are considered QFs. If one of the power plants in which
the Company has an interest were to lose its QF status and not otherwise receive
a PUHCA exemption, the project subsidiary or partnership in which the Company
has an interest owning or leasing that plant could become a public utility
company, which could subject the Company to significant federal, state and local
laws, including rate regulation and regulation as a public utility holding
company under PUHCA. This loss of QF status, which may be prospective or
retroactive, in turn, could cause all of the Company's other power plants to
lose QF status because, under regulations of the Federal Energy Regulatory
Commission ("FERC"), a QF cannot be owned by an electric utility or electric
utility holding company. In addition, a loss of QF status could, depending on
the power sales agreement, allow the power purchaser to cease taking and paying
for electricity or to seek refunds of past amounts paid and thus could cause the
loss of some or all contract revenues or otherwise impair the value of a project
and could trigger defaults under provisions of the applicable project contracts
and financing agreements (rendering such debt immediately due and payable). If a
power purchaser ceased taking and paying for electricity or sought to obtain
refunds of past amounts paid, there can be no assurance that the costs incurred
in connection with the project could be recovered through sales to other
purchasers. See "Business -- Government Regulation -- Federal Energy
Regulation."

Currently, Congress is considering proposed legislation that would amend
PURPA by eliminating the requirement that utilities purchase electricity from
QFs at avoided costs. The Company does not know whether such legislation will be
passed or what form it may take. The Company believes that if any such
legislation is passed, it would apply to new projects. As a result, although
such legislation may adversely affect the Company's ability to develop new
projects, the Company believes it would not affect the Company's existing QFs.
There can be no assurance, however, that any legislation passed would not
adversely impact the Company's existing projects.

Many states are implementing or considering regulatory initiatives designed
to increase competition in the domestic power generation industry. In a December
20, 1995 policy decision, the California Public Utilities Commission ("CPUC")
outlined a new market structure that would provide for a competitive power
generation industry and direct access to generation for all consumers within
five years. As part of its policy decision, the CPUC indicated that power sales
agreements of existing QFs would be honored. The Company

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cannot predict the final form or timing of the proposed restructuring and the
impact, if any, that such restructuring would have on the Company's existing
business or results of operations.

SEISMIC DISTURBANCES

Areas in which the Company operates and is developing geothermal and
gas-fired projects are subject to frequent low-level seismic disturbances, and
more significant seismic disturbances are possible. While the Company's existing
power generation facilities are built to withstand relatively significant levels
of seismic disturbances, and the Company believes it maintains adequate
insurance protection, there can be no assurance that earthquake, property damage
or business interruption insurance will be adequate to cover all potential
losses sustained in the event of serious seismic disturbances or that such
insurance will continue to be available to the Company on commercially
reasonable terms.

AVAILABILITY OF NATURAL GAS

To date, the Company's fuel acquisition strategy has included various
combinations of Company-owned gas reserves, gas prepayment contracts and short-,
medium- and long-term supply contracts. In its gas supply arrangements, the
Company attempts to match the fuel cost with the fuel component included in the
facility's power sales agreements, in order to minimize a project's exposure to
fuel price risk. The Company believes that there will be adequate supplies of
natural gas available at reasonable prices for each of its facilities when
current gas supply agreements expire. There can be no assurance, however, that
gas supplies will be available for the full term of the facilities' power sales
agreements, or that gas prices will not increase significantly. If gas is not
available, or if gas prices increase above the fuel component of the facilities'
power sales agreements, there could be a material adverse impact on the
Company's net revenues.

COMPETITION

The power generation industry is characterized by intense competition, and
the Company encounters competition from utilities, industrial companies and
other power producers. In recent years, there has been increasing competition in
an effort to obtain new power sales agreements, and this competition has
contributed to a reduction in electricity prices. In this regard, many utilities
often engage in "competitive bid" solicitations to satisfy new capacity demands.
This competition adversely affects the ability of the Company to obtain power
sales agreements and the price paid for electricity. There also is increasing
competition between electric utilities, particularly in California where the
CPUC has launched an initiative designed to give all electric consumers the
ability to choose between competing suppliers of electricity. See
"Business -- Government Regulation -- State Regulation." This competition has
put pressure on electric utilities to lower their costs, including the cost of
purchased electricity, and increasing competition in the future will increase
this pressure. See "Business -- Competition."

CONTROL BY ELECTROWATT

Electrowatt owns all of the Company's outstanding shares of Common Stock
and Preferred Stock. See "Principal Shareholders." As a result, Electrowatt
controls matters requiring approval by the shareholders of the Company,
including the election of a majority of directors. In circumstances involving a
conflict of interest between Electrowatt and the holders of the Senior Notes,
there can be no assurance that Electrowatt would not exercise such control in a
manner that would benefit Electrowatt to the detriment of the holders of the
Senior Notes. The Company does not currently have any established procedures
regarding conflicts of interest between Electrowatt and the Company. The Company
will consider any such conflict on a case-by-case basis. See "Certain
Transactions" and "Principal Shareholders."

Electrowatt has advised the Company that its current strategy is to focus
its resources on its industrial business. As a result, Electrowatt is
approaching selected strategic investors for the purpose of selling all or a
substantial percentage of the shares of Common Stock and Preferred Stock of the
Company owned by Electrowatt. If such a sale were to occur, it could constitute
a Change in Control Triggering Event requiring the Company to make an offer to
purchase the Senior Notes and the 9 1/4% Senior Notes. However,

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<PAGE> 25

Electrowatt has agreed with the Company that any strategic investor will have a
strong balance sheet and credit rating so as to avoid the occurrence of a Change
of Control Triggering Event. See "-- High Leverage."

DEPENDENCE ON SENIOR MANAGEMENT

The Company's success is largely dependent on the skills, experience and
efforts of its senior management. The loss of the services of one or more
members of the Company's senior management could have a material adverse effect
on the Company's business and development. To date, the Company generally has
been successful in retaining the services of its senior management. See
"Management."

ABSENCE OF PUBLIC MARKET

There has previously been no public market for the Senior Notes. The
Company does not intend to list the New Notes on any securities exchange or to
seek approval for quotation through any automated quotation system. There can be
no assurance that an active trading market will develop or be sustained in the
New Notes. To the extent that a market for the New Notes does develop, the
market value of the New Notes will depend on market conditions (such as yields
on alternative investments), general economic conditions, the Company's
financial condition and other conditions. Such conditions might cause the New
Notes, to the extent they are actively traded, to trade at a significant
discount from face value.

CONSEQUENCES OF FAILURE TO EXCHANGE

Untendered Old Notes that are not exchanged for New Notes pursuant to the
Exchange Offer will remain subject to the existing restrictions on transfer of
such Old Notes. Additionally, holders of any Old Notes not tendered in the
Exchange Offer will not have any rights under the Registration Rights Agreement
to cause the Company to register the Old Notes, and the interest rate on the Old
Notes will remain at its initial rate of 10 1/2% per annum.

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<PAGE> 26

USE OF PROCEEDS

The Company will not receive any cash proceeds from the issuance of the New
Notes offered hereby. In consideration for issuing the New Notes as contemplated
in this Prospectus, the Company will receive in exchange Old Notes in like
principal amount, the terms of which are identical to the New Notes. The Old
Notes surrendered in exchange for New Notes will be retired and canceled and
cannot be reissued. Accordingly, issuance of the New Notes will not result in
any increase in the indebtedness of the Company.

The net proceeds received by the Company from the sale of the Old Notes
(after the deduction of placement agent fees and other expenses of such sale)
were approximately $174.6 million. The Company used the net proceeds as follows:
(i) $57.0 million to repay in full The Bank of Nova Scotia loan to Calpine
Thermal Company, a wholly owned subsidiary of the Company (the "$57 Million Bank
of Nova Scotia Loan"), (ii) $45.0 million to repay in full The Bank of Nova
Scotia loan to the Company (the "$45 Million Bank of Nova Scotia Loan"), (iii)
approximately $53.7 million to repay revolving loans outstanding under the
Credit Suisse Credit Facility and (iv) approximately $18.9 million for general
corporate purposes. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."

DIVIDEND POLICY

From time to time, the Company has declared or paid cash dividends on its
Class B Common Stock. All shares of Class B Common Stock are held by
Electrowatt. During 1995, the Company paid $800,000 in cash dividends on the
Class B Common Stock. The Company currently anticipates paying a cash dividend
of $800,000 on the Class B Common Stock during 1996. The Company has never
declared or paid cash dividends on the Class A Common Stock or on the Series A
Preferred Stock. However, the Company intends to amend its Second Amended and
Restated Articles of Incorporation to provide that dividends may be declared and
paid on the Series A Preferred Stock, when and if declared by the Board of
Directors. The Company's ability to pay cash dividends is limited under the
Indentures. See "Description of Senior Notes -- Certain Covenants -- Limitation
on Restricted Payments" and "Description of Certain Other Indebtedness -- 9 1/4%
Senior Notes Due 2004." Future cash dividends, if any, will be at the discretion
of the Company's Board of Directors and will depend upon, among other things,
the Company's future operations and earnings, capital requirements, general
financial condition, contractual restrictions (including the Indentures) and
such other factors as the Board of Directors may deem relevant.

THE EXCHANGE OFFER

GENERAL

In connection with the sale of the Old Notes, the Company entered into the
Registration Rights Agreement, which requires the Company to file with the
Commission a registration statement (the "Exchange Offer Registration
Statement") under the Securities Act with respect to an issue of senior notes of
the Company with terms identical to the Old Notes (except with respect to
restrictions on transfer) and to use its best efforts to cause such registration
statement to become effective under the Securities Act and, upon the
effectiveness of such registration statement, to offer to the holders of the Old
Notes the opportunity, for a period of 30 days from the date the notice of the
Exchange Offer is mailed to holders of the Old Notes, to exchange their Old
Notes for a like principal amount of New Notes. The Exchange Offer is being made
pursuant to the Registration Rights Agreement to satisfy the Company's
obligations thereunder.

Under existing interpretations of the staff of the Commission, the New
Notes would, in general, be freely transferable after the Exchange Offer without
further registration under the Securities Act by holders thereof (other than (i)
a broker-dealer who acquires such New Notes directly from the Company to resell
pursuant to Rule 144A or any other available exemption under the Securities Act
or (ii) a person that is an affiliate of the Company within the meaning of Rule
405 under the Securities Act), without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the

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ordinary course of such holders' business and such holders have no arrangements
with any person to participate in the distribution of such New Notes. Eligible
holders wishing to accept the Exchange Offer must represent to the Company that
such conditions have been met. Each broker-dealer that receives New Notes for
its own account pursuant to the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such New Notes.

In the event that applicable interpretations of the staff of the Commission
would not permit the Company to effect the Exchange Offer or, if for any other
reason the Exchange Offer is not consummated on or prior to November 12, 1996,
the Company has agreed to use its best efforts to cause to become effective a
shelf registration statement (the "Shelf Registration Statement") with respect
to the resale of the Old Notes and to keep the Shelf Registration Statement
effective until three years after the date of the initial sale of the Old Notes
or until all the Old Notes covered by the Shelf Registration Statement have been
sold pursuant to such Shelf Registration Statement.

TERMS OF THE EXCHANGE OFFER

Each holder of Old Notes who wishes to exchange Old Notes for New Notes in
the Exchange Offer will be required to make certain representations, including
that (i) it is neither an affiliate of the Company nor a broker-dealer tendering
Old Notes acquired directly from the Company for its own account, (ii) any New
Notes to be received by it were acquired in the ordinary course of its business
and (iii) at the time of commencement of the Exchange Offer, it has no
arrangement with any person to participate in the distribution (within the
meaning of the Securities Act) of the New Notes. In addition, in connection with
any resales of New Notes, any broker-dealer (a "Participating Broker-Dealer")
who acquired Old Notes for its own account as a result of market-making
activities or other trading activities must deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of the New
Notes. The Commission has taken the position that Participating Broker-Dealers
may fulfill their prospectus delivery requirements with respect to the New Notes
(other than a resale of an unsold allotment from the original sales of Old
Notes) with the prospectus contained in the Exchange Offer Registration
Statement. Under the Registration Rights Agreement, the Company is required to
allow Participating Broker-Dealers (and other persons, if any, subject to
similar prospectus delivery requirements) to use the prospectus contained in the
Exchange Offer Registration Statement in connection with the resale of such New
Notes, provided, however, the Company shall not be required to amend or
supplement such prospectus for a period exceeding 180 days after the
consummation of the Exchange Offer. The Company has also agreed that in the
event that either the Exchange Offer is not consummated or a Shelf Registration
Statement is not declared effective on or prior to November 12, 1996, the
interest rate borne by the Old Notes will be increased by one-half of one
percent per annum until the earlier of the consummation of the Exchange Offer or
the effectiveness of the Shelf Registration Statement, as the case may be.

In the event an exchange offer is consummated on or before November 12,
1996, the Company will not be required to file a Shelf Registration Statement to
register any outstanding Old Notes, and the interest rate on such Old Notes will
remain at its initial level of 10 1/2% per annum. The Exchange Offer shall be
deemed to have been consummated upon the Company's having exchanged, pursuant to
the Exchange Offer, New Notes for all Old Notes that have been properly tendered
and not withdrawn by the Expiration Date. In such event, holders of Old Notes
not participating in the Exchange Offer who are seeking liquidity in their
investment would have to rely on exemptions to registration requirements under
the securities laws, including the Securities Act.

Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal, the Company will accept all Old
Notes validly tendered prior to 5:00 p.m., New York City time, on the Expiration
Date. The Company will issue $1,000 in principal amount of New Notes (and any
integral multiple thereof) in exchange for an equal principal amount of
outstanding Old Notes tendered and accepted in the Exchange Offer. Holders may
tender some or all of their Old Notes pursuant to the Exchange Offer in any
denomination of $1,000 or in integral multiples thereof.

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<PAGE> 28

Based on no-action letters issued by the staff of the Commission to third
parties, the Company believes that the New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be offered for resale, resold and otherwise
transferred by holders thereof (other than any such holder that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such New Notes are acquired in
the ordinary course of such holders' business and such holders have no
arrangement with any person to participate in the distribution of such New
Notes. Any holder of Old Notes who tenders in the Exchange Offer for the purpose
of participating in a distribution of the New Notes cannot rely on such
interpretation by the staff of the Commission and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives New
Notes for its own account in exchange for Old Notes, where such Old Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes.

The form and terms of the New Notes will be the same as the form and terms
of the Old Notes except that the New Notes will not bear legends restricting the
transfer thereof. The New Notes will evidence the same debt as the Old Notes.
The New Notes will be issued under and entitled to the benefits of the Note
Indenture.

As of the date of this Prospectus, $180,000,000 aggregate principal amount
of the Old Notes are outstanding and there are two registered holders thereof.
In connection with the issuance of the Old Notes, the Company arranged for the
Old Notes to be eligible for trading in the Private Offering, Resale and Trading
through Automated Linkages (PORTAL) Market, the National Association of
Securities Dealers' screen based, automated market trading of securities
eligible for resale under Rule 144A and to be issued and transferable in
book-entry form through the facilities of DTC. The New Notes will also be
issuable and transferable in book-entry form through DTC.

This Prospectus, together with the accompanying Letter of Transmittal, is
being sent to all registered holders as of , 1996 (the "Record
Date").

The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. See "Exchange Agent." The Exchange Agent will act as agent for
the tendering holders of Old Notes for the purpose of receiving New Notes from
the Company and delivering New Notes to such holders.

If any tendered Old Notes are not accepted for exchange because of an
invalid tender or the occurrence of certain other events set forth herein,
certificates for any such unaccepted Old Notes will be returned, without
expense, to the tendering holder thereof as promptly as practicable after the
Expiration Date.

Holders of Old Notes who tender in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes, in connection with the Exchange Offer. See
"Fees and Expenses."

Holders of Old Notes do not have any appraisal or dissenters' rights under
the California Corporations Code or the Note Indenture in connection with the
Exchange Offer. The Company intends to conduct the Exchange Offer in accordance
with the provisions of the Registration Rights Agreement and the applicable
requirements of the Exchange Act and the rules and regulations of the Commission
thereunder. Old Notes that are not tendered for exchange in the Exchange Offer
will remain outstanding and continue to accrue interest, but will not be
entitled to any rights or benefits under the Registration Rights Agreement.

EXPIRATION DATE; EXTENSIONS; AMENDMENTS

The term "Expiration Date" shall mean 5:00 p.m. New York City time, on
, 1996 unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date to which the Exchange Offer is extended.

25
<PAGE> 29

In order to extend the Expiration Date, the Company will notify the
Exchange Agent of any extension by oral or written notice and will mail to the
record holders of Old Notes an announcement thereof, each prior to 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
Expiration Date. Such announcement may state that the Company is extending the
Exchange Offer for a specified period of time.

The Company reserves the right (i) to delay acceptance of any Old Notes, to
extend the Exchange Offer or to terminate the Exchange Offer and to refuse to
accept Old Notes not previously accepted, if any of the conditions set forth
herein under "Termination" shall have occurred and shall not have been waived by
the Company (if permitted to be waived by the Company), by giving oral or
written notice of such delay, extension or termination to the Exchange Agent,
and (ii) to amend the terms of the Exchange Offer in any manner deemed by it to
be advantageous to the holders of the Old Notes. Any such delay in acceptance,
extension, termination or amendment will be followed as promptly as practicable
by oral or written notice thereof. If the Exchange Offer is amended in a manner
determined by the Company to constitute a material change, the Company will
promptly disclose such amendment in a manner reasonably calculated to inform the
holders of the Old Notes of such amendment.

Without limiting the manner in which the Company may choose to make public
announcements of any delay in acceptance, extension, termination or amendment of
the Exchange Offer, the Company shall have no obligation to publish, advertise,
or otherwise communicate any such public announcement, other than by making a
timely release to the Dow Jones News Service.

INTEREST ON THE NEW NOTES

The New Notes will bear interest from the last Interest Payment Date on
which interest was paid on the Old Notes, or if interest has not yet been paid
on the Old Notes, from May 16, 1996. Such interest will be paid with the first
interest payment on the New Notes. Interest on the Old Notes accepted for
exchange will cease to accrue upon issuance of the New Notes.

The New Notes will bear interest at a rate of 10 1/2% per annum. Interest
on the New Notes will be payable semi-annually, in arrears, on each Interest
Payment Date following the consummation of the Exchange Offer. Untendered Old
Notes that are not exchanged for New Notes pursuant to the Exchange Offer will
bear interest at a rate of 10 1/2% per annum after the Expiration Date.

PROCEDURES FOR TENDERING

To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal or such facsimile, together with the Old
Notes (unless the book-entry transfer procedures described below are used) and
any other required documents, to the Exchange Agent for receipt prior to 5:00
p.m., New York City time, on the Expiration Date.

Any financial institution that is a participant in DTC's Book-Entry
Transfer Facility system may make book-entry delivery of the Old Notes by
causing DTC to transfer such Old Notes into the Exchange Agent's account in
accordance with DTC's procedure for such transfer. Although delivery of Old
Notes may be effected through book-entry transfer into the Exchange Agent's
account at DTC, the Letter of Transmittal (or facsimile thereof), with any
required signature guarantees and any other required documents, must, in any
case, be transmitted to and received or confirmed by the Exchange Agent at its
addresses set forth in this Prospectus prior to 5:00 p.m., New York City time,
on the Expiration Date. DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH ITS
PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.

The tender by a holder of Old Notes will constitute an agreement between
such holder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.

Delivery of all documents must be made to the Exchange Agent at its address
set forth herein. Holders may also request that their respective brokers,
dealers, commercial banks, trust companies or nominees effect such tender for
such holders.

26
<PAGE> 30

The method of delivery of Old Notes and the Letter of Transmittal and all
other required documents to the Exchange Agent is at the election and risk of
the holders. Instead of delivery by mail, it is recommended that holders use an
overnight or hand delivery service. In all cases, sufficient time should be
allowed to assure timely delivery. No Letter of Transmittal should be sent to
the Company.

Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
The term "holder" with respect to the Exchange Offer means any person in whose
name Old Notes are registered on the books of the Company or any other person
who has obtained a properly completed bond power from the registered holder or
any person whose Old Notes are held of record by DTC who desires to deliver such
Old Notes by book-entry transfer at DTC.

Any beneficial holder whose Old Notes are registered in the name of such
holder's broker, dealer, commercial bank, trust company or other nominee and who
wishes to tender should contact such registered holder promptly and instruct
such registered holder to tender on such holder's behalf. If such beneficial
holder wishes to tender on such holder's own behalf, such beneficial holder
must, prior to completing and executing the Letter of Transmittal and delivering
such holder's Old Notes, either make appropriate arrangements to register
ownership of the Old Notes in such holder's name or obtain a properly completed
bond power from the registered holder. The transfer of record ownership may take
considerable time.

Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act (an "Eligible Institution") that is a participant
in a recognized medallion signature guarantee program unless the Old Notes
tendered pursuant thereto are tendered (i) by a registered holder who has not
completed the box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the Letter of Transmittal or (ii) for the account of an
Eligible Institution.

If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Notes listed therein, such Old Notes must be
endorsed or accompanied by appropriate bond powers which authorize such person
to tender the Old Notes on behalf of the registered holder, in either case
signed as the name of the registered holder or holders appears on the Old Notes.

If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
submit evidence satisfactory to the Company of their authority to so act with
the Letter of Transmittal.

All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered Old Notes will be determined
by the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Old Notes
not properly tendered or any Old Notes the Company's acceptance of which would,
in the opinion of counsel for the Company, be unlawful. The Company also
reserves the absolute right to waive any irregularities or conditions of tender
as to particular Old Notes. The Company's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be cured
within such time as the Company shall determine. Neither the Company, the
Exchange Agent nor any other person shall be under any duty to give notification
of defects or irregularities with respect to tenders of Old Notes nor shall any
of them incur any liability for failure to give such notification. Tenders of
Old Notes will not be deemed to have been made until such irregularities have
been cured or waived. Any Old Notes received by the Exchange Agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned without cost by the Exchange Agent to the
tendering holder of such Old Notes unless otherwise provided in the Letter of
Transmittal as soon as practicable following the Expiration Date.

27
<PAGE> 31

In addition, the Company reserves the right in its sole discretion to (a)
purchase or make offers for any Old Notes that remain outstanding subsequent to
the Expiration Date, or, as set forth under "Termination," to terminate the
Exchange Offer and (b) to the extent permitted by applicable law, purchase Old
Notes in the open market, in privately negotiated transactions or otherwise. The
terms of any such purchases or offers may differ from the terms of the Exchange
Offer.

GUARANTEED DELIVERY PROCEDURES

Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, or (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Expiration Date, or if such holder cannot complete the procedure for book-entry
transfer on a timely basis, may effect a tender if:

(a) the tender is made through an Eligible Institution;

(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder of the Old Notes, the
certificate number or numbers of such Old Notes and the principal amount of
Old Notes tendered, stating that the tender is being made thereby, and
guaranteeing that, within three business days after the Expiration Date,
the Letter of Transmittal (or facsimile thereof), together with the
certificate(s) representing the Old Notes (unless the book-entry transfer
procedures are to be used) to be tendered in proper form for transfer and
any other documents required by the Letter of Transmittal, will be
deposited by the Eligible Institution with the Exchange Agent; and

(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), together with the certificate(s) representing all
tendered Old Notes in proper form for transfer (or confirmation of a
book-entry transfer into the Exchange Agent's account at DTC of Old Notes
delivered electronically) and all other documents required by the Letter of
Transmittal are received by the Exchange Agent within three business days
after the Expiration Date.

Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.

WITHDRAWAL OF TENDERS

Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.

To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date. Any such notice of withdrawal must (i) specify the name of
the person having deposited the Old Notes to be withdrawn (the "Depositor"),
(ii) identify the Old Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Old Notes), (iii) be signed by the
Depositor in the same manner as the original signature on the Letter of
Transmittal by which such Old Notes were tendered (including any required
signature guarantees) or be accompanied by documents of transfer sufficient to
permit the Trustee with respect to the Old Notes to register the transfer of
such Old Notes into the name of the Depositor withdrawing the tender and (iv)
specify the name in which any such Old Notes are to be registered, if different
from that of the Depositor. All questions as to the validity, form and
eligibility (including time of receipt) of such withdrawal notices will be
determined by the Company, whose determination shall be final and binding on all
parties. Any Old Notes so withdrawn will be deemed not to have been validly
tendered for purposes of the Exchange Offer, and no New Notes will be issued
with respect thereto unless the Old Notes so withdrawn are validly retendered.
Any Old Notes that have been tendered but which are not accepted for exchange
will be returned to the holder thereof without cost to such holder as soon as
practicable after withdrawal, rejection of tender or termination of the Exchange

28
<PAGE> 32

Offer. Properly withdrawn Old Notes may be retendered by following one of the
procedures described above under "Procedures for Tendering" at any time prior to
the Expiration Date.

TERMINATION

Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or exchange New Notes for any Old Notes not
theretofore accepted for exchange, and may terminate or amend the Exchange Offer
as provided herein before the acceptance of such Old Notes if: (i) any action or
proceeding is instituted or threatened in any court or by or before any
governmental agency with respect to the Exchange Offer, which, in the Company's
judgment, might materially impair the Company's ability to proceed with the
Exchange Offer or (ii) any law, statute, rule or regulation is proposed, adopted
or enacted, or any existing law, statute, rule or regulation is interpreted by
the staff of the Commission in a manner, which, in the Company's judgment, might
materially impair the Company's ability to proceed with the Exchange Offer.

If the Company determines that it may terminate the Exchange Offer, as set
forth above, the Company may (i) refuse to accept any Old Notes and return any
Old Notes that have been tendered to the holders thereof, (ii) extend the
Exchange Offer and retain all Old Notes tendered prior to the expiration of the
Exchange Offer, subject to the rights of such holders of tendered Old Notes to
withdraw their tendered Old Notes, or (iii) waive such termination event with
respect to the Exchange Offer and accept all properly tendered Old Notes that
have not been withdrawn. If such waiver constitutes a material change in the
Exchange Offer, the Company will disclose such change by means of a supplement
to this Prospectus that will be distributed to each registered holder of Old
Notes, and the Company will extend the Exchange Offer for a period of five to
ten business days, depending upon the significance of the waiver and the manner
of disclosure to the registered holders of the Old Notes, if the Exchange Offer
would otherwise expire during such period.

EXCHANGE AGENT

Fleet National Bank has been appointed as Exchange Agent for the Exchange
Offer. Questions and requests for assistance and requests for additional copies
of this Prospectus or of the Letter of Transmittal should be directed to the
Exchange Agent addressed as follows:

<TABLE>
<S> <C>
By Hand: By Mail or Overnight Courier:
Fleet National Bank Fleet National Bank
Corporate Trust Operations Corporate Trust Operations
777 Main Street, Lower Level 777 Main Street, Lower Level
Hartford, Connecticut 06115 CTMO 0224
Attention: Patricia Williams Hartford, Connecticut 06115
Attention: Patricia Williams
Facsimile Transmission: (860) 986-7908
</TABLE>

FEES AND EXPENSES

The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail. Additional solicitations may be made by
officers and regular employees of the Company and its affiliates in person, by
telegraph or by telephone.

The Company will not make any payments to brokers, dealers or other persons
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable customary fees for its services and will reimburse the
Exchange Agent for its reasonable out-of-pocket expenses in connection
therewith. The Company may also pay brokerage houses and other custodians,
nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them
in forwarding copies of this Prospectus, Letters of

29
<PAGE> 33

Transmittal and related documents to the beneficial owners of the Old Notes and
in handling or forwarding tenders for exchange.

The expenses to be incurred in connection with the Exchange Offer,
including fees and expenses of the Exchange Agent and Trustee and accounting and
legal fees, will be paid by the Company.

The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing New Notes or Old Notes not tendered or accepted for exchange are to
be delivered to, or are to be registered or issued in the name of, any person
other than the registered holder of the Old Notes tendered, or if tendered Old
Notes are registered in the name of any person other than the person signing the
Letter of Transmittal, or if a transfer tax is imposed for any reason other than
the exchange of Old Notes pursuant to the Exchange Offer, then the amount of any
such transfer taxes (whether imposed on the registered holder or any other
persons) will be payable by the tendering holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering holder.

ACCOUNTING TREATMENT

The New Notes will be recorded at the same carrying value as the Old Notes,
which is face value, as reflected in the Company's accounting records on the
date of the exchange. Accordingly, no gain or loss for accounting purposes will
be recognized by the Company upon the consummation of the Exchange Offer. The
expenses of the Exchange Offer will be amortized by the Company over the term of
the New Notes under generally accepted accounting principles.

30
<PAGE> 34

CAPITALIZATION

The following table sets forth, as of March 31, 1996 (i) the actual
consolidated capitalization of the Company; and (ii) the pro forma consolidated
capitalization of the Company after giving effect to the King City Transaction
and the sale of the Old Notes and the application of the net proceeds therefrom
as described in "Use of Proceeds." This table should be read in conjunction with
"Pro Forma Consolidated Financial Data" and the consolidated financial
statements and related notes thereto appearing elsewhere in this Prospectus.

<TABLE>
<CAPTION>
MARCH 31, 1996
------------------------
PRO FORMA
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Current portion of non-recourse project financing.................. $ 83,846 $ 26,846
Notes payable to bank.............................................. 969 969
-------- -----------
Total short-term debt........................................... $ 84,815 $ 27,815
======== =========
Long-term debt:
Long-term line of credit........................................... $ 32,151 --
Non-recourse long-term project financing, less current portion..... 185,798 $ 185,798
Notes payable...................................................... 6,473 6,473
Senior Notes Due 2004.............................................. 105,000 105,000
Senior Notes Due 2006.............................................. -- 180,000
-------- -----------
Total long-term debt............................................ 329,422 477,271
-------- -----------
Shareholder's equity:
Series A Preferred Stock, $0.01 par value: no shares authorized or
outstanding, actual, 5,000,000 shares authorized and
outstanding, pro forma and pro forma as adjusted................ 50,000 50,000
Class A Common Stock, $0.01 par value: 3,500,000 shares authorized;
no shares outstanding(1)........................................ -- --
Class B Common Stock, $0.01 par value: 3,000,000 shares authorized;
2,000,000 shares outstanding.................................... 20 20
Additional paid-in capital......................................... 6,204 6,204
Retained earnings.................................................. 18,740 18,740
Cumulative translation adjustment.................................. (31) (31)
-------- -----------
Total shareholder's equity...................................... 74,933 74,933
-------- -----------
Total capitalization.......................................... $404,355 $ 552,204
======== =========
</TABLE>

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

(1) Does not include 460,550 shares of Class A Common Stock subject to issuance
upon exercise of options previously granted and outstanding as of March 31,
1996 under the Company's Stock Option Program. See "Executive
Compensation -- Stock Option Program."

31
<PAGE> 35

SELECTED CONSOLIDATED FINANCIAL DATA

The consolidated financial data set forth below for and as of the five
years ended December 31, 1995 have been derived from the audited consolidated
financial statements of the Company. The consolidated financial data for the
three months ended March 31, 1996 and as of March 31, 1996 are unaudited, but
have been prepared on the same basis as the audited consolidated financial
statements and, in the opinion of management, contain all adjustments,
consisting only of normal recurring adjustments necessary for the fair
presentation of the financial position and results of operations for these
periods. Consolidated operating results for the three months ended March 31,
1996 are not necessarily indicative of the results that may be expected for the
entire year. The following selected consolidated financial data should be read
in conjunction with the consolidated financial statements and the related notes
thereto appearing elsewhere in this Prospectus, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------------------ ---------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Revenue:
Electricity and steam sales..... -- -- $ 53,000 $ 90,295 $127,799 $ 21,103 $ 25,775
Service contract revenue........ $ 29,067 $ 29,817 16,896 7,221 7,153 1,523 2,586
Income (loss) from
unconsolidated investments in
power projects................ 9,985 9,760 19 (2,754) (2,854) (616) 1,415
Interest income on loans to
power projects................ -- -- -- -- -- -- 1,897
-------- -------- -------- -------- -------- -------- --------
Total revenue................. 39,052 39,577 69,915 94,762 132,098 22,010 31,673
Cost of revenue................... 25,064 25,921 42,501 52,845 77,388 13,392 21,329
-------- -------- -------- -------- -------- -------- --------
Gross profit...................... 13,988 13,656 27,414 41,917 54,710 8,618 10,344
Project development expenses...... 1,067 806 1,280 1,784 3,087 501 516
General and administrative
expenses........................ 3,443 3,924 5,080 7,323 8,937 1,545 2,640
Compensation expense related to
stock options(1)................ -- 1,224 -- -- -- -- --
Provision for write-off of project
development costs(2)............ -- 800 -- 1,038 -- -- --
-------- -------- -------- -------- -------- -------- --------
Income from operations........ 9,478 6,902 21,054 31,772 42,686 6,572 7,188
Interest expense.................. 1,925 1,225 13,825 23,886 32,154 6,931 8,219
Other income, net................. (416) (310) (1,133) (1,988) (1,895) (459) (533)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before provision
for income taxes,
extraordinary item and
cumulative effect of change
in accounting
principle................... 7,969 5,987 8,362 9,874 12,427 100 (498)
Provision for (benefit from)
income taxes.................... 3,149 2,527 4,195 3,853 5,049 41 (204)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary item and
cumulative effect of change
in accounting principle..... 4,820 3,460 4,167 6,021 7,378 59 (294)
Extraordinary item:
Utilization of net operating
loss carryforward............. 1,138 -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
cumulative effect of change
in accounting principle..... 5,958 3,460 4,167 6,021 7,378 59 (294)
Cumulative effect of adoption of
SFAS No. 109.................... -- -- (413) -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)......... $ 5,958 $ 3,460 $ 3,754 $ 6,021 $ 7,378 $ 59 $ (294)
======== ======== ======== ======== ======== ======== ========
(See footnotes on next page)
</TABLE>

32
<PAGE> 36

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
OTHER FINANCIAL DATA AND RATIOS:
Depreciation and amortization..... $ 219 $ 232 $ 12,540 $ 21,580 $ 26,896 $ 5,179 $ 6,866
EBITDA(3)......................... $ 4,909 $ 9,898 $ 42,370 $ 53,707 $ 69,515 $ 12,196 $ 13,340
EBITDA to Consolidated Interest
Expense(4)...................... 2.55x 4.73x 2.98x 2.23x 2.11x
Total debt to EBITDA.............. 5.87x 3.70x 6.24x 6.23x 5.87x
Ratio of earnings to fixed
charges(5)...................... 2.28x 3.41x 2.09x 1.52x 1.46x
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------------------------ AS OF MARCH 31,
1991 1992 1993 1994 1995 1996
-------- -------- -------- -------- -------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............. $ 958 $ 2,160 $ 6,166 $ 22,527 $ 21,810 $ 68,647
Property, plant and equipment, net..... 351 424 251,070 335,453 447,751 448,261
Investments in power projects.......... 32,256 47,646 13,894 11,114 8,218 12,206
Notes receivable....................... -- -- 1,716 16,882 25,785 31,270
Total assets........................... 41,245 55,370 302,256 421,372 554,531 605,349
Short-term debt........................ 2,657 1,200 17,200 27,300 85,885 84,815
Long-term line of credit............... 24,967 35,467 52,595 -- 19,851 32,151
Non-recourse debt...................... -- -- 194,746 196,806 190,642 185,798
Notes payable.......................... 1,200 -- -- 5,296 6,348 6,473
Senior Notes Due 2004.................. -- -- -- 105,000 105,000 105,000
Total debt............................. 28,824 36,667 264,541 334,402 407,726 414,237
Shareholder's equity................... 6,621 10,505 13,429 18,649 25,227 74,933
</TABLE>

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

(1) Represents a non-cash charge for compensation expense associated with the
grant of certain options under the Company's Stock Option Program. See
"Executive Compensation -- Stock Option Program."

(2) Represents a write-off of certain capitalized project costs.

(3) EBITDA is defined as income from operations plus depreciation, capitalized
interest, other income, non-cash charges and cash received from investments
in power projects, reduced by the income from unconsolidated investments in
power projects. See "Description of Senior Notes -- Certain Definitions."
EBITDA is presented here not as a measure of operating results but rather as
a measure of the Company's ability to service debt. EBITDA should not be
construed as an alternative either (i) to income from operations (determined
in accordance with generally accepted accounting principles) or (ii) to cash
flows from operating activities (determined in accordance with generally
accepted accounting principles).

(4) Consolidated Interest Expense is defined as total interest expense plus
one-third of all operating lease obligations, capitalized interest,
dividends paid in respect of preferred stock and cash contributions to any
employee stock ownership plan used to pay interest on loans incurred to
purchase capital stock of the Company. See "Description of Senior
Notes -- Certain Definitions."

(5) Earnings are defined as income before provision for taxes, extraordinary
item and cumulative effect of change in accounting principle plus cash
received from investments in power projects and fixed charges reduced by the
equity in income from investments in power projects and capitalized
interest. Fixed charges consist of interest expense, capitalized interest,
amortization of debt issuance costs and the portion of rental expenses
representative of the interest expense component.

33
<PAGE> 37

PRO FORMA CONSOLIDATED FINANCIAL DATA

The following unaudited pro forma consolidated statement of operations for
the year ended December 31, 1995 gives effect to (i) the Transactions; (ii) the
Preferred Stock Investment and the application of the proceeds therefrom as
described under "Summary -- Background"; and (iii) the sale of the Old Notes and
the application of the net proceeds therefrom as described under "Use of
Proceeds," as if such transactions had occurred on January 1, 1995. The
following unaudited pro forma consolidated statement of operations for the three
months ended March 31, 1996 gives effect to (i) the King City Transaction; and
(ii) the sale of the Old Notes and the application of the net proceeds therefrom
as described under "Use of Proceeds," as if such transactions had occurred on
January 1, 1996. For further discussion regarding the Transactions, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Description of Facilities." The following unaudited
pro forma consolidated balance sheet as of March 31, 1996 gives effect to (i)
the King City Transaction; and (ii) the sale of the Old Notes and the
application of the net proceeds therefrom as described under "Use of Proceeds,"
as if such transactions had occurred on March 31, 1996.

The pro forma consolidated financial data and accompanying notes should be
read in conjunction with the consolidated financial statements and related notes
thereto appearing elsewhere in this Prospectus. The pro forma adjustments are
based upon available information and certain assumptions that management
believes are reasonable and are described in the notes accompanying the pro
forma consolidated financial data. The pro forma consolidated financial data are
presented for informational purposes only and do not purport to represent what
the Company's results of operations or financial position would actually have
been had such transactions in fact occurred at such dates, or to project the
Company's results of operations or financial position at any future date or for
any future period. In the opinion of management, all adjustments necessary to
present fairly such pro forma consolidated financial data have been made.

34
<PAGE> 38

PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------------------------------------
PRO FORMA FOR THE
TRANSACTIONS, THE
ADJUSTMENTS FOR THE PRO FORMA FOR THE ADJUSTMENTS PREFERRED STOCK
TRANSACTIONS AND TRANSACTIONS AND FOR THE INVESTMENT AND
THE PREFERRED STOCK THE PREFERRED SALE OF THE THE SALE OF THE
ACTUAL INVESTMENT(1) STOCK INVESTMENT OLD NOTES OLD NOTES
-------- ------------------- ----------------- ----------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Electricity and steam sales......... $127,799 $ 53,128 $ 180,927 -- $ 180,927
Service contract revenue............ 7,153 250 7,403 -- 7,403
Income (loss) from unconsolidated
investments in power projects..... (2,854) -- (2,854) -- (2,854)
Interest income on loans to power
projects.......................... -- 2,564 2,564 -- 2,564
-------- -------- -------- ----------- --------
Total revenue..................... 132,098 55,942 188,040 -- 188,040
-------- -------- -------- ----------- --------
Cost of revenue:
Plant operating expenses............ 33,162 23,554 56,716 -- 56,716
Depreciation and amortization....... 26,264 10,348 36,612 -- 36,612
Operating lease expense............. 1,542 11,703 13,245 -- 13,245
Service contract expense............ 5,846 -- 5,846 -- 5,846
Production royalties................ 10,574 -- 10,574 -- 10,574
-------- -------- -------- ----------- --------
Total cost of revenue............. 77,388 45,605 122,993 -- 122,993
-------- -------- -------- ----------- --------
Gross profit.......................... 54,710 10,337 65,047 -- 65,047
Project development expenses.......... 3,087 -- 3,087 -- 3,087
General and administrative expenses... 8,937 -- 8,937 -- 8,937
-------- -------- -------- ----------- --------
Income from operations............ 42,686 10,337 53,023 -- 53,023
Interest expense...................... 32,154 7,025 39,179 $ 9,176(2) 48,355
Other income, net..................... (1,895) (7,263) (9,158) -- (9,158)
-------- -------- -------- ----------- --------
Income before provision for income
taxes............................. 12,427 10,575 23,002 (9,176) 13,826
Provision for income taxes............ 5,049 4,295 9,344 (3,728) 5,616
-------- -------- -------- ----------- --------
Net income...................... $ 7,378 $ 6,280 $ 13,658 $ (5,448) $ 8,210
======== ================= ================ =========== ================
OTHER FINANCIAL DATA AND RATIOS:
Depreciation and amortization....... $ 26,896 $ 37,244 $ 37,244
EBITDA.............................. $ 69,515 $ 101,364 $ 101,364
EBITDA to Consolidated Interest
Expense(3)........................ 2.11x 2.31x 1.91x
Total debt to EBITDA................ 5.87x 4.60x 5.04x
Ratio of earnings to fixed
charges........................... 1.46x 1.59x 1.31x
</TABLE>

See Notes to Pro Forma Consolidated Statements of Operations

35
<PAGE> 39

PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996
---------------------------------------------------------------------------------------
PRO FORMA FOR THE
ADJUSTMENTS PRO FORMA ADJUSTMENTS KING CITY
FOR THE FOR THE FOR THE TRANSACTION AND
KING CITY KING CITY SALE OF THE THE SALE OF THE
ACTUAL TRANSACTION(4) TRANSACTION OLD NOTES OLD NOTES
------- ------------------- ----------------- ----------- ---------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Electricity and steam sales........ $25,775 $ 4,957 $ 30,732 -- $ 30,732
Service contract revenue........... 2,586 -- 2,586 -- 2,586
Income (loss) from unconsolidated
investments in power projects.... 1,415 -- 1,415 -- 1,415
Interest income on loans to power
projects......................... 1,897 -- 1,897 -- 1,897
------- ------ -------- ------ --------
Total revenue.................... 31,673 4,957 36,630 -- 36,630
------- ------ -------- ------ --------
Cost of revenue:
Plant operating expenses........... 9,657 2,381 12,038 -- 12,038
Depreciation and amortization...... 6,694 2,099 8,793 -- 8,793
Operating lease expense............ 781 2,529 3,310 -- 3,310
Service contract expense........... 1,857 -- 1,857 -- 1,857
Production royalties............... 2,340 -- 2,340 -- 2,340
------- ------ -------- ------ --------
Total cost of revenue............ 21,329 7,009 28,338 -- 28,338
------- ------ -------- ------ --------
Gross profit......................... 10,344 (2,052) 8,292 -- 8,292
Project development expenses......... 516 -- 516 -- 516
General and administrative
expenses........................... 2,640 -- 2,640 -- 2,640
------- ------ -------- ------ --------
Income from operations........... 7,188 (2,052) 5,136 -- 5,136
Interest expense..................... 8,219 1,043 9,262 $ 2,490(5) 11,752
Other income, net.................... (533) (1,790) (2,323) -- (2,323)
------- ------ -------- ------ --------
Income (loss) before provision
for income taxes............... (498) (1,305) (1,803) (2,490) (4,293)
Provision for (benefit from) income
taxes.............................. (204) (535) (739) (1,020) (1,759)
------- ------ -------- ------ --------
Net income (loss)............ $ (294) $ (770) $ (1,064) $(1,470) $ (2,534)
======= ====== ======== ====== ========
OTHER FINANCIAL DATA AND RATIOS:
Depreciation and amortization...... $ 6,866 $ 8,965 $ 8,965
EBITDA............................. $13,340 $ 16,020 $ 16,020
</TABLE>

See Notes to Pro Forma Consolidated Statements of Operations

36
<PAGE> 40

NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS

(1) Represents the pro forma results of operations for the facilities involved
in the Transactions for the periods during which such facilities were not
owned by the Company during 1995, as if the Transactions had been completed
on January 1, 1995, including (i) the Greenleaf 1 and 2 Facilities for the
period through April 21, 1995; (ii) the Watsonville Facility for the period
through June 28, 1995; (iii) the Cerro Prieto Steam Fields for the period
through December 14, 1995; and (iv) the King City Facility for the period
through December 31, 1995. The information provided for the Cerro Prieto
Steam Fields does not include the portion of service contract revenue which
is contingent on future results. The following table sets forth adjustments
to results of operations for such periods:

<TABLE>
<CAPTION>
GREENLEAF
1 AND 2 WATSONVILLE CERRO PRIETO KING CITY
FACILITIES FACILITY STEAM FIELDS FACILITY TOTAL
--------- ----------- ------------ --------- -------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Revenue:
Electricity and steam sales.......................... $ 5,314 $ 3,978 -- $43,836 $53,128
Service contract revenue............................. -- -- $ 250 -- 250
Income (loss) from unconsolidated investments in
power projects..................................... -- -- -- -- --
Interest income on loans to power projects........... -- -- 2,564 -- 2,564
--------- ----------- ------ --------- -------
Total revenue...................................... 5,314 3,978 2,814 43,836 55,942
--------- ----------- ------ --------- -------
Cost of revenue:
Plant operating expenses............................. 5,954 2,857 -- 14,743 23,554
Depreciation and amortization........................ 1,802 147 -- 8,399 10,348
Operating lease expense.............................. -- 1,586 -- 10,117 11,703
Service contract expense............................. -- -- -- -- --
Production royalties................................. -- -- -- -- --
--------- ----------- ------ --------- -------
Total cost of revenue.............................. 7,756 4,590 -- 33,259 45,605
--------- ----------- ------ --------- -------
Gross profit........................................... (2,442) (612) 2,814 10,577 10,337
Project development expenses........................... -- -- -- -- --
General and administrative expenses.................... -- -- -- -- --
--------- ----------- ------ --------- -------
Income (loss) from operations...................... (2,442) (612) 2,814 10,577 10,337
Interest expense....................................... 1,921 -- 932 4,172 7,025
Other income, net...................................... (105) -- -- (7,158) (7,263)
--------- ----------- ------ --------- -------
Income (loss) before provision for income taxes.... (4,258) (612) 1,882 13,563 10,575
Provision (benefit) for income taxes................... (1,730) (249) 765 5,509 4,295
--------- ----------- ------ --------- -------
Net income (loss).............................. $(2,528) $ (363) $1,117 $ 8,054 $ 6,280
======== ========== ============ ========= =======
</TABLE>

(2) Reflects $18.9 million of interest expense related to the Old Notes and
$540,000 of amortization expense for the costs associated with the sale of
the Old Notes, reduced by $4.4 million of actual interest expense in 1995
for repayment of the $57 Million Bank of Nova Scotia Loan, $3.4 million of
interest expense for the repayment of the $45 Million Bank of Nova Scotia
Loan (assuming an interest rate of 7.5%) and $2.4 million of interest
expense for the repayment of the Credit Suisse Credit Facility. The $2.4
million represents $704,000 of actual interest expense in 1995 and $1.7
million of assumed interest expense to fund the King City and Cerro Prieto
Transactions (assuming an interest rate of 6.0%).

(3) The pro forma EBITDA to Consolidated Interest Expense ratio presented gives
effect to the sale of the Old Notes and the application of the net proceeds
therefrom as if such transaction had occurred on January 1, 1995. For
purposes of the "Limitation on Incurrence of Indebtedness" covenant under
the Indenture, such ratio was calculated as if such transaction had occurred
on April 1, 1995 and did not give effect to the portion of the Old Notes
incurred pursuant to refinancing and other permitted exceptions thereto.
Under such method of calculation, such ratio would have been 2.02x for the
twelve-month period ended March 31, 1996.

37
<PAGE> 41

(4) Represents the pro forma results of operations for the King City Facility
as if the King City Transaction had been completed on January 1, 1996.

(5) Reflects $4.7 million of interest expense related to the Old Notes and
$135,000 of amortization expense for the costs associated with the sale of
the Old Notes, reduced by $962,000 of actual interest expense for the
repayment of the $57 Million Bank of Nova Scotia Loan, $844,000 of interest
expense for the repayment of the $45 Million Bank of Nova Scotia Loan
(assuming an interest rate of 7.5%) and $564,000 of interest expense for
the repayment of the Credit Suisse Credit Facility. The $564,000 represents
$365,000 of actual interest expense and $199,000 of assumed interest
expense to fund a portion of the King City Transaction (assuming an
interest rate of 6.0%).

38
<PAGE> 42

PRO FORMA CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
------------------------------------------------------------------------
PRO FORMA FOR THE
ADJUSTMENTS PRO FORMA ADJUSTMENTS KING CITY
FOR THE FOR THE FOR THE TRANSACTION AND
KING CITY KING CITY SALE OF THE THE SALE OF THE
ACTUAL TRANSACTION TRANSACTION OLD NOTES OLD NOTES
-------- ------------ ------------ ----------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ 68,647 $(50,000)(1) $ 18,647 $ 27,168(10) $ 45,815
Accounts receivable............................ 25,636 782(2) 26,418 -- 26,418
Other current assets........................... 4,900 -- 4,900 -- 4,900
-------- ------------ ------------ ----------- --------
Total current assets......................... 99,183 (49,218) 49,965 27,168 77,133
Property, plant & equipment, net................. 448,261 82,090(3) 530,351 -- 530,351
Investments in power projects.................... 12,206 -- 12,206 -- 12,206
Notes receivable................................. 31,270 -- 31,270 -- 31,270
Restricted marketable securities................. -- 100,700(4) 100,700 -- 100,700
Other assets..................................... 14,429 7,260(5) 21,689 5,400(11) 27,089
-------- ------------ ------------ ----------- --------
Total assets................................. $605,349 $140,832 $746,181 $ 32,568 $ 778,749
======== =========== =========== =========== ================
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Current portion of non-recourse project
financing.................................... $ 83,846 $ 45,000(6) $128,846 $(102,000)(12) $ 26,846
Other current liabilities...................... 16,348 461(7) 16,809 -- 16,809
-------- ------------ ------------ ----------- --------
Total current liabilities.................... 100,194 45,461 145,655 (102,000) 43,655
Long-term credit facility........................ 32,151 13,281(8) 45,432 (45,432)(13) --
Non-recourse long-term project financing, less
current portion................................ 185,798 -- 185,798 -- 185,798
Notes payable.................................... 6,473 -- 6,473 -- 6,473
Senior Notes Due 2004............................ 105,000 -- 105,000 -- 105,000
Senior Notes Due 2006............................ -- -- -- 180,000(14) 180,000
Deferred lease incentive......................... -- 82,090(9) 82,090 -- 82,090
Deferred income taxes, net....................... 97,164 -- 97,164 -- 97,164
Other liabilities................................ 3,636 -- 3,636 -- 3,636
-------- ------------ ------------ ----------- --------
Total liabilities............................ 530,416 140,832 671,248 32,568 703,816
-------- ------------ ------------ ----------- --------
Shareholder's equity:
Preferred stock................................ 50,000 -- 50,000 -- 50,000
Common stock................................... 20 -- 20 -- 20
Additional paid-in capital..................... 6,204 -- 6,204 -- 6,204
Retained earnings.............................. 18,740 -- 18,740 -- 18,740
Cumulative translation adjustment.............. (31) -- (31) -- (31)
-------- ------------ ------------ ----------- --------
Total shareholder's equity................... 74,933 -- 74,933 -- 74,933
-------- ------------ ------------ ----------- --------
Total liabilities and shareholder's equity... $605,349 $140,832 $746,181 $ 32,568 $ 778,749
======== =========== =========== =========== ================
</TABLE>

See Notes to Pro Forma Consolidated Balance Sheet

39
<PAGE> 43

NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET

(1) Represents the cash required to finance, in part, the King City
Transaction.

(2) Represents the accounts receivable in the King City Transaction.

(3) Represents the value of the power sales agreement rights assumed with the
lease associated with the King City Transaction.

(4) Reflects the collateral fund of investment grade securities owned by the
Company to support a portion of the annual operating lease payments
associated with the King City Transaction.

(5) Includes $1.3 million required to fund reserve accounts, $2.0 million to
terminate the existing operating and maintenance agreement, $6.4 million of
prepaid expenses, $1.8 million of transaction costs that are capitalized
and written off over the life of the lease reduced by a $4.2 million
adjustment associated with the King City Transaction to account for
differences between the effective date and the closing date.

(6) Represents the $45 Million Bank of Nova Scotia Loan required to finance, in
part, the King City Transaction.

(7) Represents the accounts payable in the King City Transaction.

(8) Reflects additional borrowings under the Credit Suisse Credit Facility
required to finance, in part, the King City Transaction.

(9) Represents the deferred lease incentive to reflect the value of the power
sales agreement assumed in the King City Transaction.

(10) Represents the cash balance after the application of the net proceeds from
the sale of the Old Notes.

(11) Reflects the costs associated with the sale of the Old Notes that are
capitalized and written off over the ten-year term of the Old Notes.

(12) Reflects the repayment of the $57 Million Bank of Nova Scotia Loan and the
$45 Million Bank of Nova Scotia Loan with a portion of the net proceeds
from the sale of the Old Notes.

(13) Reflects the repayment of the $45.4 million outstanding on the Credit
Suisse Credit Facility with a portion of the net proceeds from the sale of
the Old Notes.

(14) Represents the Old Notes.

40
<PAGE> 44

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with, and is
qualified in its entirety by reference to, the consolidated financial statements
of the Company, including the notes thereto, appearing elsewhere in this
Prospectus.

GENERAL

Calpine is engaged in the acquisition, development, ownership and operation
of power generation facilities and the sale of electricity and steam in the
United States and selected international markets. The Company has interests in
14 power generation facilities and steam fields having an aggregate capacity of
937 megawatts. Since its inception in 1984, Calpine has developed substantial
expertise in all aspects of electric power generation. The Company's vertical
integration has resulted in significant growth over the last five years as
Calpine has applied its extensive engineering, construction management,
operations, fuel management and financing capabilities to successfully implement
its acquisition and development program. During the last five years, Calpine has
expanded substantially, from $41.2 million of total assets as of December 31,
1991 to $778.7 million of total assets on a pro forma basis as of March 31,
1996. Calpine's revenue on a pro forma basis for 1995 increased to $188.0
million, representing a compound annual growth rate of 48% since 1991. The
Company's EBITDA on a pro forma basis for 1995 increased to $101.4 million.

On September 9, 1994, the Company acquired Thermal Power Company, which
owns a 25% undivided interest in certain steam fields at The Geysers steam
fields in northern California (the "Geysers") with a total capacity of 604
megawatts (the "Thermal Power Company Steam Fields") for a purchase price of
$66.5 million. In January 1995, the Company purchased the working interest in
certain of the geothermal properties at the PG&E Unit 13 and Unit 16 Steam
Fields from a third party for a purchase price of $6.75 million. On April 21,
1995, the Company acquired the stock of certain companies that own 100% of the
Greenleaf 1 and 2 Facilities, consisting of two 49.5 megawatt natural gas-fired
cogeneration facilities, for a purchase price of $80.5 million. On June 29,
1995, the Company acquired the operating lease for the Watsonville Facility, a
28.5 megawatt natural gas-fired cogeneration facility, for a purchase price of
$900,000. On November 17, 1995, the Company entered into a series of agreements
to invest up to $20.0 million in the Cerro Prieto Steam Fields. In April 1996,
the Company entered into a $108.3 million transaction involving a lease for the
120 megawatt King City Facility. See "Business -- Description of Facilities."

Each of the power generation facilities produces electricity for sale to a
utility. Thermal energy produced by the gas-fired cogeneration facilities is
sold to governmental and industrial users, and steam produced by the geothermal
steam fields is sold to utility-owned power plants. The electricity, thermal
energy and steam generated by these facilities are typically sold pursuant to
long-term take-and-pay power or steam sales agreements generally having original
terms of 20 or 30 years.

Each of the Company's power and steam sales agreements contains curtailment
provisions under which the purchasers of energy or steam are entitled to reduce
the number of hours of energy or amount of steam purchased thereunder. During
1995, certain of the Company's power generation facilities experienced maximum
curtailment primarily as a result of low gas prices and a high degree of
precipitation during the period, which resulted in high levels of energy
generation by hydroelectric power facilities that supply electricity. The
Company expects maximum curtailment during 1996 under its power and steam sales
agreements for certain of its facilities. See "Business -- Description of
Facilities."

Many states are implementing or considering regulatory initiatives designed
to increase competition in the domestic power generation industry. In a December
20, 1995 policy decision, the CPUC outlined a new market structure that would
provide for a competitive power generation industry and direct access to
generation for all consumers within five years. As part of its policy decision,
the CPUC indicated that power sales agreements of existing QFs would be honored.
The Company cannot predict the final form or timing of the proposed
restructuring and the impact, if any, that such restructuring would have on the
Company's existing business or results of operations. The Company believes that
any such restructuring would not have a

41
<PAGE> 45

material effect on power sales agreements and, accordingly, believes that its
existing business and results of operations would not be materially affected
although there can be no assurance in this regard.

Electricity and steam sales represents the sale of electricity and
geothermal steam from the Company's majority-owned facilities to utilities under
the terms and conditions of long-term power and steam sales agreements. Revenue
attributable to the West Ford Flat Facility, the Bear Canyon Facility, the
Greenleaf 1 and 2 Facilities, the Watsonville Facility, the PG&E Unit 13 and
Unit 16 Steam Fields, the Thermal Power Company Steam Fields and the SMUDGEO #1
Steam Fields is included in electricity and steam sales. See
"Business -- Description of Facilities."

Service contract revenue consists of revenue earned on services performed
under operating and maintenance agreements for projects that are not
consolidated in the Company's consolidated financial statements. The Company
recognizes revenue on these agreements at the time services are performed.

Income from unconsolidated investments in power projects represents the
Company's share of income from projects that are not consolidated in the
Company's consolidated financial statements and, accordingly, are accounted for
under the equity method of accounting. The Company's share of income from such
projects is calculated according to the Company's equity ownership or in
accordance with the terms of the appropriate partnership agreement. The
Company's current investments which are accounted for under the equity method
consist of the Aidlin Facility, the Agnews Facility and the Sumas Facility.

Depreciation and amortization expense for natural gas-fired cogeneration
facilities is computed using a straight-line method over the estimated remaining
useful life. Depreciation and amortization expense also reflects the
amortization of the Company's geothermal power generation facilities and steam
fields using the units of production method of depreciation. The Company
capitalizes all capital costs related to the operating power plants and steam
fields, as well as the cost of drilling wells and estimated future development
and de-commissioning costs. These capital costs are then amortized using the
units of production method based on current production over the estimated useful
life of the geothermal resource. It is reasonably possible that the estimate of
useful lives, total units of production or total capital costs to be amortized
using the units of production method could differ materially in the near term
from the amounts assumed in arriving at current depreciation and amortization
expense.

Capitalized project costs are costs related to the development or
acquisition of new projects which are capitalized upon the execution of a
memorandum of understanding or a power sales agreement. Upon the start-up of
plant operations or the completion of an acquisition, such costs are generally
transferred to property, plant and equipment and amortized over the estimated
useful life of the project. As of December 31, 1995, the Company had deferred
$1.1 million of development costs associated with projects currently in the
development stage.

General and administrative expenses include administrative, accounting,
finance, legal, human resources, insurance and other expenses incurred in
connection with the Company's operations. In addition, general and
administrative expenses also include the expenses associated with management of
the Company's operating and maintenance agreements and the expenses incurred in
the management of the Company's project investments.

Provision for income taxes includes income taxes calculated at the
effective rate for each applicable period reflecting statutory rates and as
adjusted for percentage depletion in excess of basis and other items.

SELECTED OPERATING INFORMATION

Set forth below is certain selected operating information for the power
generation facilities and steam fields, for which results are consolidated in
the Company's statements of operations. The information set forth under power
plants consists of the results for the West Ford Flat Facility, the Bear Canyon
Facility and, for 1995, the Greenleaf 1 and 2 Facilities and the Watsonville
Facility since their acquisitions on April 21, 1995 and June 29, 1995,
respectively. The information set forth under steam fields consists of the
results for the PG&E Unit 13 and Unit 16 Steam Fields, the SMUDGEO #1 Steam
Fields and, for 1994 and 1995, the Thermal Power Company Steam Fields since the
acquisition of Thermal Power Company on September 9,

42
<PAGE> 46

1994. The information provided for the other interest included under steam
revenue prior to 1995 represents revenue attributable to a working interest that
was held by a third party in the PG&E Unit 13 and Unit 16 Steam Fields. In
January 1995, the Company purchased this working interest. Prior to the
Company's acquisition of the remaining interest in the West Ford Flat Facility,
Bear Canyon Facility, the PG&E Unit 13 and Unit 16 Steam Fields and the SMUDGEO
#1 Steam Fields in April 1993, the Company's revenue from these facilities was
accounted for under the equity method and, therefore, does not represent the
actual revenue of the Company from these facilities for the periods set forth
below. See "-- General."

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------------------------------------------------- ----------------------------------
1991 1992 1993 1994 1995
------- ------- ------- ------- -------
1995 1996
----------------------- -----------------------
PRO FORMA(1) PRO FORMA(2)
ACTUAL ------------ ACTUAL ------------
------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
POWER PLANTS:
Electricity
revenue:
Energy........... $33,426 $38,325 $37,088 $45,912 $54,886 $ 80,255 $11,140 $15,339 $ 19,143
Capacity......... $ 7,562 $ 7,707 $ 7,834 $ 7,967 $30,485 $ 58,116 380 1,566 2,719
Megawatt hours
produced......... 392,471 403,274 378,035 447,177 1,033,566 1,859,277 96,406 330,675 424,658
Average energy
price per
kilowatt
hour(3).......... 8.517c 9.503c 9.811c 10.267c 5.310c 4.317c 11.555c 4.639c 4.508c
STEAM FIELDS:
Steam revenue:
Calpine.......... $36,173 $33,385 $31,066 $32,631 $39,669 $ 39,669 $ 9,583 $ 8,870 $ 8,870
Other interest... $ 2,820 $ 2,501 $ 2,143 $ 2,051 -- -- -- -- --
Megawatt hours
produced......... 2,095,576 2,105,345 2,014,758 2,156,492 2,415,059 2,415,059 468,526 556,039 556,039
Average price per
kilowatt hour.... 1.861c 1.705c 1.648c 1.608c 1.643c 1.643c 2.045c 1.595c 1.595c
</TABLE>

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

(1) Pro forma results for the year ended December 31, 1995 give effect to the
Greenleaf Transaction, the Watsonville Transaction and the King City
Transaction as if such transactions had occurred on January 1, 1995.

(2) Pro forma results for the three months ended March 31, 1996 give effect to
the King City Transaction as if such transaction had occurred on January 1,
1996.

(3) Represents energy revenue divided by the kilowatt hours produced.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995

Revenue. The Company's total revenue was $31.7 million for the three
months ended March 31, 1996 compared to $22.0 million for the comparable period
in 1995. Electricity and steam sales revenue increased 22% to $25.8 million for
the three months ended March 31, 1996, compared to $21.1 million for the
comparable period in 1995. The increase was primarily attributable to $4.5
million of revenue from the Greenleaf 1 and 2 Facilities and $1.2 million from
the Watsonville Facility which were included in the Company's operations after
March 31, 1995. The SMUDGEO#1 Steam Fields also contributed $465,000 to the
revenue increase, primarily due to an increase in production and in the steam
sales price. Offsetting the favorable increases was a $709,000 decrease in
revenue from the PG&E Unit 13 and Unit 16 Steam Fields due to a price decrease
in accordance with the steam sales agreements and higher curtailment by PG&E
during the three months ended March 31, 1996 due to hydro-spill conditions.
Revenue from the West Ford Flat and Bear Canyon facilities also decreased
$310,000 for the three months ended March 31, 1996 compared to the same period
in 1995. The decrease was due to less production, offset by a price increase.
Service contract revenue from related parties increased 33% to $2.0 million for
the three months ended March 31, 1996 compared to $1.5 million for the same
period in 1995. Approximately $342,000 of the increase was related to revenue
for an overhaul at the Aidlin Facility. Service revenue from others for the
three months ended March 31, 1996 consisted of a $255,000 advisory fee for
financing of a power generation facility; $191,000 of technical services and
management fees related to the Cerro Prieto Steam Fields; and $128,000 of power
services revenue. Income from unconsolidated investments in power projects
increased to $1.4 million for the three months ended March 31, 1996 compared to
a $616,000 loss for the comparable period in 1995. The

43
<PAGE> 47

increase is primarily attributable to $1.6 million of equity income from
the Company's investment in Sumas Cogeneration Company, L.P. ("Sumas") in which
the Company is a limited partner. The increase in Sumas' profitability during
1996 is primarily attributable to an increase in the sale price in accordance
with the power sales agreement with Puget Sound Power & Light Company. Interest
income on loans to power projects contributed $1.9 million to the revenue
increase for the three months ended March 31, 1996. In 1993 and 1994, the
Company loaned a total of $11.5 million to the sole shareholder of Sumas Energy,
Inc. ("SEI"), the general partner of Sumas. The loans bear interest at 16.25% to
20%, and are generally secured by a pledge to Calpine of SEI's interest in
Sumas. The Company will receive payments of 75% of SEI's cash distributions from
Sumas. Prior to 1996, the Company deferred recognition of interest income from
these notes until Sumas generated net income. During the three months ended
March 31, 1996, the Company recognized interest income of $1.6 million based on
SEI's proportionate share of net income. In addition, the Company recognized
$342,000 of interest income on loans to Coperlasa related to the Cerro Prieto
Steam Fields.

Cost of revenue. Cost of revenue increased 59% to $21.3 million for the
three months ended March 31, 1996 compared to $13.4 million for the comparable
period in 1995. The increase was primarily due to plant operating, depreciation,
operating lease and production royalty expenses attributable to the operations
of the Greenleaf 1 and 2 Facilities and the Watsonville Facility acquired on
April 21, 1995 and June 29, 1995, respectively. The increases were partially
offset by lower operating and depreciation expenses at Calpine Geysers Company,
L.P.

General and administrative expenses. General and administrative expenses
increased 73% to $2.6 million for the three months ended March 31, 1996 compared
to $1.5 million for the same period in 1995. The three months ended March 31,
1995 included a $324,000 decrease in expenses due to an adjustment of the bonus
accrual for 1994. The three months ended March 31, 1996 also included $408,000
of costs related to the Company's power services activities. The remaining
increases in 1996 were due to additional personnel and related expenses
necessary to support the Company's expanded operations.

Interest expense. Interest expense increased to $8.2 million for the three
months ended March 31, 1996 compared to $6.9 million for the comparable period
in 1995. The 19% increase was attributable to $1.5 million of interest expense
incurred on the debt related to the Greenleaf 1 and 2 Facilities acquired in
April 1995.

Other income, net. Other income, net increased 16% to $533,000 for the
three months ended March 31, 1996 compared to $459,000 for the same period in
1995. The increase was primarily due to $80,000 of interest income earned on the
$50.0 million of proceeds from the issuance of the Series A Preferred Stock.

Provision for income taxes. The effective rate for the income tax
provision (benefit) was approximately 41% for the three months ended March 31,
1996 and 1995. The effective rate was based on statutory tax rates.

YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994

Revenue. Revenue increased 39.0% to $132.1 million in 1995 compared to
$94.8 million in 1994, primarily due to a 41.5% increase in electricity and
steam sales to $127.8 million in 1995 compared to $90.3 million in 1994. Such an
increase was primarily attributable to the $28.3 million of revenue from the
Greenleaf 1 and 2 Facilities, $5.9 million of revenue from the Watsonville
Facility, the $5.2 million of additional revenue from the Thermal Power Company
Steam Fields as a result of a full year of operation in 1995, and an increase of
$3.0 million of revenue from the SMUDGEO #1 Steam Fields attributable to
increased production as a result of an extended outage during 1994. Such an
increase also reflects a substantial increase in capacity payments for
electricity sales from $8.0 million in 1994 to $30.5 million in 1995 as a result
of the transactions stated above. This revenue increase was partially offset by
a $2.7 million decrease in revenue from the West Ford Flat and Bear Canyon
Facilities as a result of curtailments by PG&E due to low gas prices and high
levels of precipitation during 1995 as compared to 1994, offset in part by
contractual price increases for 1995. Without such curtailment, the West Ford
Flat and Bear Canyon Facilities would have generated an additional $5.2 million
of revenue in 1995. Revenue for 1995 also reflects curtailment of steam
production at the Thermal Power Company Steam Fields as a result of higher
precipitation and lower gas prices in 1995, and at the PG&E Unit 13 and Unit 16
Steam Fields as a result of hydro-spill conditions. Without curtailment, the
Thermal Power Company Steam Fields and the PG&E Unit 13 and Unit 16 Steam Fields
would have generated an additional $5.7 million and $800,000 of revenue during
1995, respectively.

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<PAGE> 48

Revenue for 1995 and 1994 reflects reversals of $2.7 million and $3.2
million, respectively, of previously deferred revenue. Company revenue from
sales of steam were previously calculated considering a future period when steam
would be delivered without receiving corresponding revenue. See note 2 of the
notes to consolidated financial statements appearing elsewhere in this
Prospectus. In May 1994, the Company ceased deferring revenue and recognized
$4.0 million of its previously deferred revenue. Based on estimates and analyses
performed by the Company, the Company no longer expects that it will be required
to make these deliveries to SMUD. Concurrently, $800,000 of the revenue increase
was reserved for future construction of gathering systems required for future
production of the steam fields, with the offset recorded in property, plant and
equipment. In October 1995, PG&E agreed to the termination of the free steam
provision with respect to the PG&E Unit 13 Steam Fields. During 1995, the
Company took additional measures regarding future capital commitments and other
actions which will increase steam production and, based on additional analyses
and estimates performed, the Company recognized the remaining $2.7 million of
previously deferred revenue.

Cost of revenue. Cost of revenue increased 46.6% to $77.4 million in 1995
compared to $52.8 million in 1994. The increase was due to plant operating,
production royalty and depreciation and amortization expenses attributable to
(i) a full year of operations at Thermal Power Company, which was purchased on
September 9, 1994, (ii) operations at the Greenleaf 1 and 2 Facilities
subsequent to April 21, 1995, and (iii) operations at the Watsonville Facility
subsequent to June 29, 1995. The increases were partially offset by lower
depreciation and production royalty expenses at the West Ford Flat and Bear
Canyon Facilities and the PG&E Unit 13 and Unit 16 Steam Fields due to
curtailment by PG&E during 1995.

Project development expenses. Project development expenses increased to
$3.1 million in 1995, compared to $1.8 million in 1994, due to new project
development activities.

General and administrative expenses. General and administrative expenses
were $8.9 million in 1995 compared to $7.3 million in 1994. The increase in 1995
was primarily due to additional personnel and related expenses necessary to
support the Company's expanded operations.

Interest expense. Interest expense increased to $32.2 million in 1995 from
$23.9 million in 1994. Approximately $3.6 million of the increase was
attributable to a full year of interest expense incurred on the debt related to
the Thermal Power Company acquisition in September 1994 and $4.1 million of
interest expense incurred on the debt related to the Greenleaf Transaction in
April 1995. In addition, 1995 included a full year of interest expense on the
9 1/4% Senior Notes issued on February 17, 1994.

Provision for income taxes. The effective rate for the income tax
provision was approximately 41% for 1995 and 39% for 1994. The effective rates
were based on statutory tax rates, with minor reductions for depletion in excess
of tax basis benefits. Due to curtailment of production during 1995, the
allowance for statutory depletion decreased in 1995 from 1994.

YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993

Revenue. Revenue increased 35.6% to $94.8 million in 1994 from $69.9
million in 1993, primarily due to a 70.4% increase in electricity and steam
sales to $90.3 million in 1994 compared to $53.0 million in 1993. Such increases
were primarily attributable to the $5.8 million of revenue from the Thermal
Power Company Steam Fields, the $5.1 million and $3.0 million of additional
revenue from the West Ford Flat and the Bear Canyon Facilities, respectively, as
a result of the acquisition of the additional interests in such facilities in
1994, the effects of curtailment at such facilities in 1993 as a result of
higher precipitation in 1993 and the sale of $804,000 of electricity to the
Northern California Power Agency. These revenue increases were partially offset
by a decrease of $3.5 million in electricity and steam sales from the SMUDGEO #1
Steam Fields as a result of a four-month shut-down for major maintenance.

In May 1994, the Company recognized approximately $5.9 million of its
previously deferred revenue. The revenue was previously deferred when it was
expected that steam would have been delivered without receiving corresponding
revenue. Based on current estimates and analyses performed by the Company, the
Company no longer expects that it will be required to make these deliveries to
SMUD. This resulted in a $4.0 million increase in revenue during 1994, while the
remaining $1.9 million was treated as a purchase price reduction to

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<PAGE> 49

property, plant and equipment. Concurrently, $800,000 of the revenue increase
was reserved for future construction of gathering systems required for future
production of the steam fields, with the offset recorded in property, plant and
equipment.

Service contract revenue decreased 57.3% to $7.2 million in 1994 compared
to $16.9 million in 1993, primarily reflecting the elimination of intercompany
revenue for services provided to the power generation facilities and steam
fields owned by CGC after the acquisition of the remaining interest in CGC in
April 1993. In addition, the decline reflected the higher revenue recognized in
1993 on services associated with the Aidlin Facility overhaul, maintenance at
the Agnews Facility, the start-up of the Sumas Facility and the completion of
the Sumas construction management project.

Unconsolidated investments in power projects contributed a loss of $2.8
million in 1994 compared to income of $19,000 in 1993. The decrease is partially
attributable to a full year of operating loss at the Sumas Facility of $2.9
million in 1994, as compared to approximately eight months of operating loss of
$1.9 million in 1993. The 1994 Sumas Facility operating loss is attributable to
higher interest, depreciation and general and administrative expenses. The
decrease from 1993 income from unconsolidated investments in power projects is
also attributable to $2.0 million of equity income from CGC recognized prior to
the April 1993 acquisition under the equity method of accounting.

Cost of revenue. Cost of revenue increased 24.2% to $52.8 million in 1994
from $42.5 million in 1993. The increase was attributable to higher plant
operating, production royalty and depreciation expenses due to a full year of
operations at CGC during 1994, and to additional expenses of Thermal Power
Company as a result of its acquisition by the Company on September 9, 1994.
Service contract expenses decreased by $8.8 million primarily due to the
elimination of $6.2 million of operation expenses incurred at CGC after the
acquisition of the remaining interest in April 1993, as well as higher 1993
costs incurred in connection with the Aidlin Facility overhaul and higher
maintenance expenses at the Agnews Facility.

Project development expenses. Project development expenses increased to
$1.8 million in 1994 from $1.3 million in 1993 due to increased expenses
attributable to new project development activities.

General and administrative expenses. General and administrative expenses
increased 43.1% to $7.3 million in 1994 from $5.1 million in 1993 due to
additional personnel and related expenses necessary to support the Company's
expanded operations.

Provision for write-off of project development expenses. The Company
established in 1994 a $1.0 million reserve for capitalized project costs
associated with the development of projects which the Company has determined may
not be consummated.

Interest expense. Interest expense increased to $23.9 million in 1994 from
$13.8 million in 1993. The Company incurred $8.5 million of interest expense
related to the 9 1/4% Senior Notes issued in February 1994. A portion of the
proceeds of the 9 1/4% Senior Notes was used to repay all of the $52.6 million
then outstanding under the Credit Suisse Credit Facility, and to repay the
non-recourse notes payable to Freeport-McMoran Resource Partners, L.P. ("FMRP")
plus accrued interest. Interest expense also increased approximately $1.0
million due to a full year of interest expense at higher interest rates related
to CGC debt. Additionally, interest expense of $1.3 million was incurred on the
new debt related to the Company's acquisition of Thermal Power Company in
September 1994.

Provision for income taxes. The effective rate for the income tax
provision was 39.0% in 1994 compared to 50.2% for 1993. The 1994 effective rate
reflects a reduction for a depletion in excess of tax basis benefit at Thermal
Power Company and CGC. The effective rate for 1993 reflects a provision of
$700,000 due to a change in the California state income tax regulations to
disallow 50% of net operating loss carryforwards.

LIQUIDITY AND CAPITAL RESOURCES

To date, the Company has obtained cash from its operations, borrowings
under the Credit Suisse Credit Facility and other working capital lines, equity
contributions from Electrowatt, and proceeds from non-recourse project
financings and other long-term debt. The Company utilized this cash to fund its
operations,

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<PAGE> 50

service debt obligations, fund the acquisition, development and construction of
power generation facilities, finance capital expenditures and meet its other
cash and liquidity needs.

The following table summarizes the Company's cash flow activities for the
periods indicated:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------- ---------------------
1993 1994 1995 1996 1995
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash flows from:
Operating activities............ $ 24,310 $ 34,196 $ 26,653 $ (2,216) $ 4,443
Investing activities............ (27,082) (84,444) (38,497) (7,639) (5,916)
Financing activities............ 6,778 66,609 11,127 56,692 (13,982)
-------- -------- -------- -------- --------
Total........................ $ 4,006 $ 16,361 $ (717) $ 46,837 $(15,455)
======== ======== ======== ======== ========
</TABLE>

Operating activities for 1995 consisted of approximately $7.4 million of
net income from operations, $25.9 million of depreciation and amortization and a
$2.9 million loss from unconsolidated investments in power projects, offset by
an $8.5 million net increase in operating assets and liabilities. Operating
activities for the three months ended March 31, 1996 consisted of approximately
$294,000 of net loss from operations, $1.4 million of income from unconsolidated
investments in power projects and a $6.7 million net increase in operating
assets and liabilities, offset by a $6.7 million of depreciation and
amortization.

Investing activities used $38.5 million during 1995, primarily due to $17.4
million of capital expenditures, $14.8 million for the acquisition of the
Greenleaf 1 and 2 Facilities and a $6.3 million investment in notes receivable.
Investing activities used $7.6 million during the three months ended March 31,
1996, primarily due to $7.3 million of capital expenditures and a $1.0 million
deposit in connection with the King City Transaction, offset by a $1.1 million
decrease in restricted cash requirements.

Financing activities provided $11.1 million of cash during 1995. Borrowings
in 1995 included $76.0 million of non-recourse project financing and $37.5
million from the Company's lines of credit. Proceeds were primarily used to
repay $60.4 million of project debt assumed in the acquisition of the Greenleaf
1 and 2 Facilities, and $15.0 million borrowed from the lines of credit for the
acquisition of the Greenleaf 1 and 2 Facilities. In addition, $19.0 million was
used to reduce the balance outstanding under non-recourse project financing, and
$6.0 million was used to repay short-term borrowings. Financing activities
provided $56.7 million of cash during the three months ended March 31, 1996. The
Company issued $50.0 million of preferred stock to Electrowatt and borrowed an
additional $12.3 million from the Credit Suisse Credit Facility. In addition,
the Company repaid $5.4 million of non-recourse project financing.

In 1995, working capital decreased $50.5 million and cash and cash
equivalents decreased $717,000. The decrease in working capital is primarily due
to the reclassification of the $57 Million Bank of Nova Scotia Loan from
long-term to current. The $57 Million Bank of Nova Scotia Loan was repaid with a
portion of the net proceeds from the sale of the Old Notes. As of March 31,
1996, cash and cash equivalents were $68.6 million and working capital was a
negative $1.0 million. For the three months ended March 31, 1996, working
capital increased $48.0 million and cash and cash equivalents increased $46.8
million as compared to the twelve months ended December 31, 1995. The increase
in working capital was primarily due to the proceeds from the issuance of $50.0
million of preferred stock which were invested until May 1, 1996 for the King
City Transaction. Working capital includes a $57.0 million non-recourse project
financing maturing September 1996. On May 16, 1996, the Company issued the Old
Notes, of which a portion of the net proceeds was used to refinance current
indebtedness and to repay the $57 Million Bank of Nova Scotia Loan.

As a developer, owner and operator of power generation projects, the
Company may be required to make long-term commitments and investments of
substantial capital for its projects. The Company historically has financed
these capital requirements with borrowings under its credit facilities, other
lines of credit, non-recourse project financing or long-term debt.

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<PAGE> 51

The Company currently has outstanding $105.0 million of its 9 1/4% Senior
Notes which mature on February 1, 2004 and bear interest at 9 1/4% payable
semi-annually on February 1 and August 1 of each year and $180.0 million of its
10 1/2% Senior Notes which mature on May 15, 2006 and bear interest at 10 1/2%
payable semi-annually on May 15 and November 15 of each year. Under the
provisions of the Indentures, the Company may, under certain circumstances, be
limited in its ability to make restricted payments, as defined, which include
dividends and certain purchases and investments, incur additional indebtedness
and engage in certain transactions.

At March 31, 1996, the Company had $269.6 million of non-recourse project
financing associated with power generating facilities and steam fields at the
West Ford Flat Facility, the Bear Canyon Facility, the PG&E Unit 13 and Unit 16
Steam Fields, the SMUDGEO #1 Steam Fields, the Thermal Power Company Steam
Fields and the Greenleaf 1 and 2 Facilities. As of March 31, 1996, the annual
maturities for all non-recourse project debt were $79.3 million for the
remainder of 1996, $24.8 million for 1997, $26.0 million for 1998, $18.7 million
for 1999, $18.0 million for 2000 and $100.2 million thereafter. On April 1,
1996, the Company repaid $4.2 million of this non-recourse project financing.

The Company currently has the Credit Suisse Credit Facility, which was
arranged by Electrowatt and provides for total borrowings of up to $58.0
million, with borrowings bearing interest at either LIBOR or at the Credit
Suisse base rate plus a mutually-agreed margin. As of March 31, 1996, the
Company had outstanding $32.2 million of borrowings at LIBOR plus a
mutually-agreed margin. After March 31, 1996, the Company borrowed additional
amounts to fund loans in connection with the Cerro Prieto Transaction, working
capital requirements, a portion of the King City Transaction, and a letter of
credit in connection with the Pasadena Cogeneration Project. Borrowings of $53.7
million under the Credit Suisse Credit Facility were repaid with a portion of
the net proceeds from the sale of the Old Notes. See "Use of Proceeds."

The Company has a $1.2 million working capital line with a commercial
lender that may be used to fund short-term working capital commitments and
letters of credit. At March 31, 1996, the Company had no borrowings under this
working capital line and $900,000 of letters of credit outstanding. Borrowings
are at prime plus 1%.

The Company also had outstanding a non-interest bearing promissory note to
Natomas Energy Company in the amount of $6.5 million representing a portion of
the September 1994 purchase price of Thermal Power Company. This note, which has
been discounted to yield 8% per annum, is due September 9, 1997.

The Company intends to continue to seek the use of non-recourse project
financing for new projects, where appropriate. The debt agreements of the
Company's subsidiaries and other affiliates governing the non-recourse project
financing generally restrict their ability to pay dividends, make distributions
or otherwise transfer funds to the Company. The dividend restrictions in such
agreements generally require that, prior to the payment of dividends,
distributions or other transfers, the subsidiary or other affiliate must provide
for the payment of other obligations, including operating expenses, debt service
and reserves. However, the Company does not believe that such restrictions will
adversely affect its ability to meet its debt obligations.

At March 31, 1996, the Company had commitments for capital expenditures in
1996 totaling $1.6 million related to various projects at its geothermal
facilities. The Company intends to fund capital expenditures for the ongoing
operation and development of the Company's power generation facilities primarily
through the operating cash flow of such facilities. Capital expenditures for
1995 were $17.4 million compared to $7.0 million for 1994, primarily due to the
purchase of new equipment and the additional working interest. For the three
months ended March 31, 1996, capital expenditures included $4.0 million for the
purchase of geothermal leases for the Glass Mountain Project and $900,000 for
the new rotor at the PG&E Unit 13 facility.

The Company continues to pursue the acquisition and development of
geothermal resources and new power generation projects. The Company expects to
commit significant capital during the remainder of 1996 and in future years for
the acquisition and development of these projects. The Company's actual capital
expenditures may vary significantly during any year.

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<PAGE> 52

In April 1996, the Company entered into a transaction involving a lease of
the King City Facility. The Company financed this transaction with the $45
Million Bank of Nova Scotia Loan, $13.3 million of borrowings under the Credit
Suisse Credit Facility (both of which were repaid with a portion of the net
proceeds from the sale of the Old Notes) and $50.0 million of proceeds from the
Preferred Stock Investment by Electrowatt. See "Use of Proceeds,"
"Business -- Description of Facilities -- King City Facility" and "Description
of Capital Stock -- Preferred Stock."

The Company believes that it will have sufficient liquidity from cash flow
from operations, borrowings available from lines of credit and working capital
lines to satisfy all obligations under outstanding indebtedness, to finance
anticipated capital expenditures and to fund working capital requirements.

IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. This
pronouncement requires that long-lived assets and certain identifiable
intangible assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. An impairment loss is to be recognized when the sum of undiscounted
cash flows is less than the carrying amount of the asset. Measurement of the
loss for assets that the entity expects to hold and use are to be based on the
fair market value of the asset. SFAS No. 121 must be adopted for fiscal years
beginning in 1996. The Company has adopted SFAS No. 121 effective January 1,
1996, and has determined that adoption of this pronouncement has no material
impact on the results of operations or financial condition of the Company as of
January 1, 1996.

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<PAGE> 53

BUSINESS

OVERVIEW

Calpine is engaged in the acquisition, development, ownership and operation
of power generation facilities and the sale of electricity and steam in the
United States and selected international markets. The Company has interests in
14 power generation facilities and steam fields having an aggregate capacity of
937 megawatts. Since its inception in 1984, Calpine has developed substantial
expertise in all aspects of electric power generation. The Company's vertical
integration has resulted in significant growth over the last five years as
Calpine has applied its extensive engineering, construction management,
operations, fuel management and financing capabilities to successfully implement
its acquisition and development program. During the last five years, Calpine has
expanded substantially, from $41.2 million of total assets as of December 31,
1991 to $778.7 million of total assets on a pro forma basis as of March 31,
1996. Calpine's revenue on a pro forma basis for 1995 increased to $188.0
million, representing a compound annual growth rate of 48% since 1991. The
Company's EBITDA on a pro forma basis for 1995 increased to $101.4 million.

THE MARKET

The power generation industry represents the third largest industry in the
United States, with an estimated end user market of approximately $207.5 billion
of electricity sales and 3.0 million gigawatt hours of production in 1995. New
regulatory initiatives are currently being adopted at both state and federal
levels to increase competition in the domestic power generation industry.
Calpine believes that as a result of such initiatives, utilities will purchase
energy generated by third-party producers for sale to end user customers at
prices determined through open market competition, rather than at rates
established by regulatory agencies. The Company believes that these regulatory
initiatives will create substantial opportunities for companies such as Calpine
to produce and sell energy to end user customers at competitive rates.

STRATEGY

Calpine's growth strategy in the United States is to maximize the power
generation potential of its operating assets and to continue to acquire and
develop additional generating capacity utilizing primarily natural gas-fired and
geothermal power generation technologies. Calpine is developing an integrated
nationwide power marketing capability, which the Company believes will enhance
the earning potential of its generating assets, generate additional revenue and
expand its customer base. Internationally, the Company intends to utilize its
gas-fired and geothermal expertise in selected markets of Southeast Asia and
Latin America, where demand for power is rapidly growing and where private
investment is encouraged.

In pursuing its growth strategy, the Company intends to focus on
opportunities where it is able to capitalize on its extensive management and
technical expertise to implement a fully integrated approach to the acquisition,
development and operation of power generation facilities. This approach enables
Calpine to control the entire process, including design, engineering,
procurement, finance, construction management, fuel and resource acquisition,
operations and power marketing. Utilizing this approach, the Company believes
that it is able to enhance the value of its projects by minimizing its cost of
production and maximizing its return on investment.

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<PAGE> 54

POWER GENERATION TECHNOLOGIES

NATURAL GAS-FIRED

Natural gas-fired power generation has become the predominant power
generation technology utilized for the production of electricity by new power
plants in the United States. Natural gas-fired power plants offer significant
advantages over power plants utilizing other fuel sources, such as coal, oil and
nuclear energy, including readily available supplies of natural gas, currently
favorable resource prices, highly efficient technology, higher availabilities,
shorter construction periods and lower capital and operating costs. In addition,
natural gas-fired power plants have fewer environmental impacts, including
significantly lower emission levels of certain pollutants than power plants
utilizing other fossil fuels such as coal and oil. During recent years, natural
gas-fired power plants have accounted for a substantial portion of the annual
increase in independent power capacity in the United States. Industry analysts
have predicted that natural gas will continue to be the dominant fuel for new
power generation facilities in the United States for the foreseeable future.
LOGO
GEOTHERMAL

Geothermal energy is a clean, alternative source of power that is produced
by utilizing hot water or steam that has been naturally heated by the earth.
Geothermal energy is found in areas of the world where heat within the earth's
crust is close to the surface. These areas generally coincide with the
boundaries of the earth's tectonic plates. Exploitable geothermal reservoirs
have three primary defining characteristics: (i) a high heat flow near the
surface, (ii) a porous geologic medium where water can circulate to become
heated and (iii) an impermeable cap rock to prevent dispersion of the heated
fluids. Factors that affect the ability to exploit geothermal energy include the
ability to drill wells and produce fluids from the porous medium, the

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<PAGE> 55

temperature and quantity of the fluids, and the chemical characteristics of the
fluids. In addition, the productive capacity of geothermal wells decreases over
time, requiring the drilling of new wells in an effort to maintain production.

LOGO

Geothermal energy facilities, such as those currently owned and operated by
the Company, provide significant advantages over other alternative power
generation technologies, such as wind, solar or solid waste/biomass, including
lower operating and maintenance costs per kilowatt hour, shorter construction
periods and higher plant availability. Geothermal energy also provides a
reliable and environmentally preferred source of electricity, emitting
significantly lower levels of pollutants than are released from power plants
utilizing fossil fuels. As a result of these and other advantages, as well as
federal and state tax incentives that have been adopted to encourage the
development of geothermal power generation projects, the Company believes that
there will continue to be demand for the production of electricity using
geothermal energy.

The geothermal energy capacity of the United States is located
predominantly in the western states in tectonically active regions. Total
installed geothermal capacity in the United States was approximately 2,925
megawatts as of the end of 1995, with approximately 2,650 megawatts located in
California and 275 megawatts located in Nevada, Utah and Hawaii. The Geysers
constitute the world's largest developed geothermal reservoir. The Geysers steam
fields have been in commercial production since 1960, and currently are capable
of producing an amount of steam sufficient to generate 1,200 megawatts of
electricity.

DESCRIPTION OF FACILITIES

The Company has interests in 14 power generation facilities and steam
fields with a current aggregate capacity of approximately 937 megawatts,
consisting of six natural gas-fired cogeneration facilities with a total
capacity of 402 megawatts, three geothermal power generation facilities with a
total capacity of 67 megawatts and five geothermal steam fields that supply
utility power plants with a total current capacity of approximately 468
megawatts. Each of the power generation facilities produces electricity for sale
to a utility. Thermal energy produced by the gas-fired cogeneration facilities
is sold to governmental and industrial users, and steam produced by the
geothermal steam fields is sold to utility-owned power plants.

The natural gas-fired and geothermal power generation projects in which the
Company has an interest produce electricity, thermal energy and steam that are
typically sold pursuant to long-term, take-and-pay

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power or steam sales agreements generally having original terms of 20 or 30
years. Revenue from a power sales agreement usually consist of two components:
energy payments and capacity payments. Energy payments are based on a power
plant's net electrical output with payment rates sometimes determined by a
schedule of prices covering a fixed number of years under the power sales
agreement, after which payment rates are usually indexed to the fuel costs of
the contracting utility or to general inflation indices. Capacity payments are
based on either a power plant's net electrical output or its available capacity.
Energy payments are made for each kilowatt hour of energy delivered, while
capacity payments are made whether or not any electricity is delivered. The
Company is paid for steam supplied by its steam fields on the basis of the
amount of electrical energy produced or steam delivered.

The Company currently provides operating and maintenance services for all
power generation facilities in which the Company has an interest, except for the
Thermal Power Company Steam Fields and the Cerro Prieto Steam Fields. Such
services include the operation of power plants, geothermal steam fields, wells
and well pumps, gathering systems and gas pipelines. The Company also supervises
maintenance, materials purchasing and inventory control; manages cash flow;
trains staff; and prepares operating and maintenance manuals for each power
generation facility. As a facility develops an operating history, the Company
analyzes its operation and may modify or upgrade equipment or adjust operating
procedures or maintenance measures to enhance the facility's reliability or
profitability. These services are performed under the terms of an operating and
maintenance agreement pursuant to which the Company is generally reimbursed for
certain costs, is paid an annual operating fee and may also be paid an incentive
fee based on the performance of the facility. The fees payable to the Company
are generally subordinated to any lease payments or debt service obligations of
non-recourse debt for the project.

In order to provide fuel for the gas-fired power generation projects in
which the Company has an interest, natural gas reserves are acquired or natural
gas is purchased from third parties under supply agreements. The Company
structures a gas-fired power facility's fuel supply agreement so that gas costs
have a direct relationship to the fuel component of revenue energy payments.

Certain power generation facilities in which the Company has an interest
have been financed primarily with non-recourse project financing that is
structured to be serviced out of the cash flows derived from the sale of
electricity, thermal energy and/or steam produced by such facility and provides
that the obligations to pay interest and principal on the loans are secured
almost solely by the capital stock or partnership interests, physical assets,
contracts and/or cash flow attributable to the entity that owns the project. The
lenders under non-recourse project financing generally have no recourse for
repayment against the Company or any assets of the Company or any other entity
other than foreclosure on pledges of stock or partnership interests and the
assets attributable to the entity that owns the facility.

Substantially all of the power generation facilities in which the Company
has an interest are located on a site which is leased on a long-term basis. The
Company currently holds interests in geothermal leaseholds in the Thermal Power
Company Steam Fields that produce steam for sale under steam sales agreements
and for use in producing electricity from its wholly owned geothermal power
generation facilities. See "-- Properties."

The continued operation of power generation facilities and steam fields
involves many risks, including the breakdown or failure of power generation
equipment, transmission lines, pipelines or other equipment or processes and
performance below expected levels of output or efficiency. To date, the
Company's power generation facilities and steam fields have operated at an
average availability in excess of 96%, and although from time to time the
Company's power generation facilities and steam fields have experienced certain
equipment breakdowns or failures, such breakdowns or failures have not had a
material adverse effect on the operation of such facilities or on the Company's
results of operations. Although the Company's facilities contain certain
redundancies and back-up mechanisms, there can be no assurance that any such
breakdown or failure would not prevent the affected facility or steam field from
performing under applicable power and/or steam sales agreements. In addition,
although insurance is maintained to protect against certain of these operating
risks, the proceeds of such insurance may not be adequate to cover lost revenue
or increased expenses, and, as a result, the entity owning such power generation
facility or steam field may be unable to service principal and interest payments
under its financing obligations and may operate at a loss. A default

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<PAGE> 57

under such a financing obligation could result in the Company losing its
interest in such power generation facility or steam field.

LOGO

Insurance coverage for each power generation facility includes commercial
general liability, workers' compensation, employer's liability and property
damage coverage which generally contains business interruption insurance
covering debt service and continuing expenses for a period ranging from 12 to 18
months.

The Company believes that each of the currently operating power generation
facilities in which the Company has an interest is exempt from financial and
rate regulation as a public utility under federal and state laws. See
"-- Government Regulation."

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<PAGE> 58

The table below sets forth certain information regarding the Company's
power generation facilities and steam fields currently in operation.

POWER GENERATION FACILITIES

<TABLE>
<CAPTION>
COMMENCEMENT TERM OF
POWER NAMEPLATE CALPINE CALPINE NET OF POWER
GENERATION CAPACITY INTEREST INTEREST COMMERCIAL UTILITY SALES
FACILITY TECHNOLOGY (MEGAWATTS)(1) PERCENTAGE (MEGAWATTS) OPERATION PURCHASER AGREEMENT
- --------------------- ------------ -------------- ---------- ----------- ------------ ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Sumas................ Gas-Fired 125 75%(2) 93.8 1993 Puget Sound 2013
Cogeneration Power &
Light
King City............ Gas-Fired 120 100% 120 1989 Pacific Gas & 2019
Cogeneration Electric
Greenleaf 1.......... Gas-Fired 49.5 100% 49.5 1989 Pacific Gas & 2019
Cogeneration Electric
Greenleaf 2.......... Gas-Fired 49.5 100% 49.5 1989 Pacific Gas & 2019
Cogeneration Electric
Agnews............... Gas-Fired 29 20% 5.8 1990 Pacific Gas & 2021
Cogeneration Electric
Watsonville.......... Gas-Fired 28.5 100% 28.5 1990 Pacific Gas & 2009
Cogeneration Electric
West Ford Flat....... Geothermal 27 100% 27 1988 Pacific Gas & 2008
Electric
Bear Canyon.......... Geothermal 20 100% 20 1988 Pacific Gas & 2008
Electric
Aidlin............... Geothermal 20 5% 1 1989 Pacific Gas & 2009
Electric
</TABLE>

STEAM FIELDS

<TABLE>
<CAPTION>
APPROXIMATE CALPINE CALPINE NET COMMENCEMENT
CAPACITY INTEREST INTEREST OF COMMERCIAL UTILITY ESTIMATED
STEAM FIELD (MEGAWATTS)(3) PERCENTAGE (MEGAWATTS) OPERATION PURCHASER LIFE(4)
- ------------------------------ ------------- ---------- ---------- ------------- ---------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Thermal Power Company......... 151 100% 151 1960 Pacific Gas 2018
& Electric
PG&E Unit 13.................. 100 100% 100 1980 Pacific Gas 2018
& Electric
PG&E Unit 16.................. 78 100% 78 1985 Pacific Gas 2018
& Electric
SMUDGEO #1.................... 59 100% 59 1983 Sacramento 2018
Municipal
Utility District
Cerro Prieto.................. 80 100%(5) 80 1973 Comision 2000(6)
Federal de
Electricidad
</TABLE>

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

(1) Nameplate capacity may not represent the actual output for a facility at any
particular time.

(2) See "-- Power Generation Facilities -- Sumas Facility" for a description of
the Company's interest in the Sumas partnership and current sales of power
by the Sumas Facility.

(3) Capacity is expected to gradually diminish as the production of the related
steam fields declines. See "-- Steam Fields."

(4) Other than the Cerro Prieto Facility, the steam sales agreements remain in
effect so long as steam is produced in commercial quantities. There can be
no assurance that the estimated life shown accurately predicts actual
productive capacity of the steam fields. See "-- Steam Fields."

(5) See "-- Steam Fields -- Cerro Prieto Steam Fields" for a description of the
Company's interest in and current sales of steam by the Cerro Prieto
Facility.

(6) Represents the actual termination of the steam sales agreement. See
"-- Steam Fields -- Cerro Prieto Steam Fields."

POWER GENERATION FACILITIES

Sumas Facility

The Sumas cogeneration facility (the "Sumas Facility") is a 125 megawatt
natural gas-fired, combined cycle cogeneration facility located in Sumas,
Washington, near the Canadian border. In 1991, the Company and Sumas Energy,
Inc. ("SEI") formed Sumas Cogeneration Company, L.P. ("Sumas") for the purpose
of developing, constructing, owning and operating the Sumas Facility. The
Company is the sole limited partner

55
<PAGE> 59

in Sumas and SEI is the general partner. The Company currently holds a 50%
interest in Sumas and SEI holds the other 50% interest. At the time the Company
receives a 24.5% pre-tax rate of return on its partnership investment in Sumas,
the Company's interest will be reduced to 11.33% and SEI's interest will
increase to 88.67%. Further, the Company receives an additional 25% of the cash
flow of the Sumas Facility to repay principal and interest on $11.5 million of
loans to the sole shareholder of SEI. A $1.5 million loan bears interest at 20%
and matures in 2003 and a $10.0 million loan bearing interest at 16.25% and
matures in 2004. The Sumas Facility commenced commercial operation in April
1993.

The Company managed the engineering, procurement and construction of the
power plant and related facilities of the Sumas Facility, including the gas
pipeline. The Sumas Facility was constructed by a Washington joint venture
formed by Industrial Power Corporation and Haskell Corporation. The Sumas
Facility is comprised of an MS 7001EA combined cycle gas turbine manufactured by
General Electric Company ("General Electric"), a Vogt heat recovery steam
generator, a General Electric steam turbine and a 3.5 mile gas pipeline. Since
start-up in April 1993, the Sumas Facility has operated at an average
availability of approximately 96.5%.

The Sumas Facility's $135.0 million construction and gas reserves
acquisition cost was financed through $120.0 million of construction and term
loan financing provided to Sumas and ENCO Gas, Ltd. ("ENCO"), a wholly-owned
Canadian subsidiary of Sumas, by The Prudential Insurance Company of America
("Prudential") and Credit Suisse. The credit facilities originally included term
loans of $70.0 million at a combined fixed interest rate of 10.28% per annum and
variable rate loans of $50.0 million currently based on LIBOR, which are
amortized over a 15-year period.

Electrical energy generated by the Sumas Facility is sold to Puget Sound
Power & Light Company ("Puget") under the terms of a 20-year power sales
agreement terminating in 2013. Under the power sales agreement, Puget has agreed
to purchase an annual average of 123 megawatts of electrical energy.

The power sales agreement provides for the sale of electrical energy at a
total price equal to the sum of (i) a fixed price component and (ii) a variable
price component multiplied by an escalation factor for the year in which the
energy is delivered. The schedule of annual fixed average energy prices
(expressed in cents per kilowatt hour) in effect through 2013 under the Sumas
power sales agreement is as follows:

<TABLE>
<CAPTION>
FIXED FIXED FIXED
ENERGY ENERGY ENERGY
YEAR PRICE YEAR PRICE YEAR PRICE
- -------------------- ------ -------------------- ------ -------------------- ------
<S> <C> <C> <C> <C> <C>
1996................ 3.19c
1997................ 3.38c
1998................ 3.64c
1999................ 3.98c
2000................ 4.23c
2001................ 6.23c
2002................ 6.11c
2003................ 6.22c
2004................ 6.33c
2005................ 6.45c
2006................ 6.57c
2007................ 5.23c
2008................ 5.31c
2009................ 5.40c
2010................ 5.49c
2011................ 5.58c
2012................ 5.58c
2013................ 5.58c
</TABLE>

The variable price component is set according to a scheduled rate set forth in
the agreement, which in 1995 was .97c per kilowatt hour, and escalates annually
by a factor equal to the U.S. Gross National Product Implicit Price Deflator.
For 1995, the average price paid by Puget under the power sales agreement was
2.954c per kilowatt hour. Pursuant to the power sales agreement, Puget may
displace the production of the Sumas Facility when the cost of Puget's
replacement power is less than the Sumas Facility's incremental power generation
costs. Thirty-five percent of the savings to Puget under this displacement
provision are shared with the Sumas Facility. In 1995, the Sumas Facility's net
profit was increased by $278,000 as a result of the displacement provision. The
Company currently estimates a similar local of displacement in 1996 as that
experienced in 1995.

In addition to the sale of electricity to Puget, pursuant to a long-term
steam supply and dry kiln lease agreement, the Sumas Facility produces and sells
approximately 23,000 pounds per hour of low pressure steam to an adjacent
lumber-drying facility owned by Sumas, which has been leased to and is operated
by Socco,

56
<PAGE> 60

Inc. ("Socco"), an SEI affiliate. It is necessary to continue to operate the dry
kiln facility in order to maintain the Sumas Facility's QF status. See
"-- Government Regulation."

In connection with the development of the Sumas Facility, Canadian natural
gas reserves located primarily in northeastern British Columbia, Canada were
acquired by Sumas through its wholly owned subsidiary, ENCO. The gas reserves
owned by ENCO totalled 138 billion cubic feet as of January 1, 1996. Firm
transportation is contracted for on the Westcoast Energy Inc. pipeline. Gas is
delivered to Huntington, British Columbia where it is transferred into Sumas'
own pipeline for transportation to the plant. ENCO is currently supplying
approximately 12,000 million British thermal units per day ("mmbtu/day") to the
Sumas Facility. The remaining 13,000 mmbtu/day requirement is being supplied
under a one-year contract with West Coast Gas Services, Inc. The Company
believes that the gas reserves owned by ENCO and the availability of
supplemental gas supplies are sufficient to fuel the Sumas Facility through the
year 2013.

The Company operates and maintains the Sumas Facility under an operating
and maintenance agreement pursuant to which the Company is reimbursed for
certain costs and is entitled to a fixed annual fee and an incentive payment
based on project performance. This agreement has an initial term of ten years
expiring in April 2003 and provides for extensions.

The Sumas Facility is located on 13.5 acres located in Sumas, Washington,
which are leased from the Port of Bellingham under the terms of a 23.5-year
lease expiring in 2014, subject to renewal. The lease provides for rental
payments according to a fixed schedule.

During 1995, the Sumas Facility generated approximately 1,026,000,000
kilowatt hours of electrical energy and approximately $31.5 million of total
revenue. In 1995, the Company recognized a loss of approximately $3.0 million in
accordance with the terms of the Sumas partnership agreement, and recorded
revenue of $2.0 million for services performed under the operating and
maintenance agreement.

King City Facility

The King City cogeneration facility (the "King City Facility") is a 120
megawatt natural gas-fired combined cycle facility located in King City,
California. In April 1996, the Company entered into a long-term operating lease
for this facility with BAF Energy, A California Limited Partnership ("BAF").
Under the terms of the operating lease, Calpine makes semi-annual lease payments
to BAF, a portion of which is supported by a $100.7 million collateral fund,
owned by the Company. The collateral consists of a portfolio of investment grade
and U.S. Treasury Securities that will mature serially in amounts equal to a
portion of the lease payments.

The Company financed the collateral fund and other transaction costs with
the $45 Million Bank of Nova Scotia Loan and $13.3 million of borrowings under
the Credit Suisse Credit Facility (both of which were repaid with a portion of
the net proceeds from the sale of the Old Notes), as well as $50.0 million of
proceeds from the Preferred Stock Investment by Electrowatt.

The power plant consists of a General Electric Frame 7 Model EA combustion
turbine generator, a Nooter/Eriksen heat recovery steam generator, an ASEA Brown
Boveri ("ABB") steam turbine generator and two Nebraska Boiler auxiliary
boilers. The King City Facility commenced commercial operation in 1989 and has
operated at an average availability of approximately 97%.

57
<PAGE> 61

Electricity generated by the King City Facility is sold to PG&E under a
30-year power sales agreement terminating in 2019. The power sales agreement
contains payment provisions for capacity and energy. The power sales agreement
provides for a firm capacity payment of $184 per kilowatt year for 111 megawatts
for the term of the agreement so long as the King City Facility delivers 80% of
the firm capacity during designated periods of the year. Additional capacity
payments are received for as-delivered capacity in excess of 111 megawatts
delivered during peak and partial peak hours. The following schedule sets forth
the as-delivered capacity prices per kilowatt year:

<TABLE>
<CAPTION>
AS-DELIVERED
YEAR CAPACITY PRICE
---------------------------------------------------- --------------
<S> <C>
1996................................................ $176
1997................................................ $188
1998................................................ $188
</TABLE>

Thereafter, the payment for as-delivered capacity will be the greater of $188
per kilowatt year or PG&E's then current as-delivered capacity rate. Through
1998, payments for electrical energy produced are based on 100% of PG&E's
avoided cost of energy for the period of January 1 through April 30, and 80% at
avoided cost and 20% at fixed prices for the period of May 1 through December
31. The schedule of fixed average energy prices (expressed in cents per kilowatt
hour) in effect through 1998 under the King City Facility power sales agreement
is as follows:

<TABLE>
<CAPTION>
ENERGY
YEAR PRICE
-------------------------------------------------------- ------
<S> <C>
1996.................................................... 12.24c
1997.................................................... 13.14c
1998.................................................... 13.14c
</TABLE>

Thereafter, PG&E is required to pay for electrical energy actually delivered at
prices equal to PG&E's then avoided cost of energy (as determined by the CPUC).
PG&E's avoided cost of energy varies from month to month and has ranged from an
annual average of 1.84c to 2.96c per kilowatt hour since 1992. During 1995,
PG&E's avoided cost of energy averaged approximately 1.84c per kilowatt hour.

Through April 28, 1999, the power sales agreement allows for dispatchable
operation which gives PG&E the right to curtail the number of hours per year
that the King City Facility operates. PG&E has an option to extend its
curtailment rights for two additional one-year terms. If PG&E exercises the
curtailment extension option, it will be required to pay an additional .7c per
kilowatt hour for all energy delivered from the King City Facility.

In addition to the sale of electricity to PG&E, the King City Facility
produces and sells thermal energy to a thermal host, Basic Vegetable Products,
Inc. ("BVP"), an affiliate of BAF, under a long-term contract coterminous with
the power sales agreement. It is necessary to continue to operate the host
facility in order to maintain the King City Facility's QF status. See
"-- Government Regulation." The BVP facility was built in 1957 and processes
between 30% and 40% of the dehydrated onion and garlic production in the United
States.

Natural gas for the King City Facility is supplied pursuant to a contract
with Chevron U.S.A. Inc. ("Chevron") expiring June 30, 1997. The Company
believes that upon expiration of this fuel supply agreement, it will be able to
obtain a sufficient quantity of natural gas to operate the King City Facility
for the remaining term of the power sales agreement. Natural gas is transported
under a firm transportation agreement, expiring June 30, 1997, via a dedicated
38-mile pipeline owned and operated by PG&E.

Fee title to the premises is owned by Basic American, Inc., who has leased
the premises to an affiliate of BAF for a term equivalent to the term of the
power sales agreement for the King City Facility. The Company is subleasing the
premises, together with certain easements, from such affiliate of BAF pursuant
to a ground sublease.

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<PAGE> 62

Greenleaf 1 and 2 Facilities

On April 21, 1995, Calpine completed the acquisition of the Greenleaf 1 and
2 cogeneration facilities (the "Greenleaf 1 and 2 Facilities") from Radnor Power
Corporation, an affiliate of LFC Financial Corporation ("LFC"), for a purchase
price of $80.5 million.

On June 30, 1995, Calpine refinanced the existing debt on the Greenleaf 1
and 2 Facilities by borrowing $76.0 million from Sumitomo Bank. The non-recourse
project financing with Sumitomo Bank is divided into two tranches, a $60.0
million fixed rate loan facility which bears interest on the unpaid principal at
a fixed rate of 7.415% per annum with amortization of principal based on a fixed
schedule through June 30, 2005, and a $16.0 million floating rate loan facility
which bears interest based on LIBOR plus an applicable margin (6.5% as of
December 31, 1995) with the amortization of principal based on a fixed schedule
through December 31, 2010.

The Greenleaf 1 and 2 Facilities have a combined natural gas requirement of
approximately 22,000 mmbtu/day. The Company, through its wholly owned subsidiary
Calpine Fuels Corporation ("Calpine Fuels"), entered into a gas supply agreement
with Montis Niger, Inc. ("MNI"), an affiliate of LFC, which owns and operates a
local gas field that is connected to the facilities. Calpine Fuels is committed
to purchasing all gas produced by MNI under this agreement which terminates in
December 2019. The quantity of gas produced by MNI varies and is currently less
than the facilities' full requirements. As a result, Calpine Fuels has
supplemented the MNI gas supply with a short-term contract with Chevron, which
expires in June 1996. This gas is delivered over PG&E's intrastate pipeline
which is directly connected to each facility. The Greenleaf 1 and 2 Facilities
have interruptible transportation agreements with PG&E, expiring in June 1997.
The Company believes that it will be able to obtain a sufficient quantity of
natural gas to operate the Greenleaf 1 and 2 Facilities for the remaining term
of the power sales agreement.

Greenleaf 1 Facility. The Greenleaf 1 cogeneration facility (the
"Greenleaf 1 Facility") is a 49.5 megawatt natural gas-fired cogeneration
facility located near Yuba City, California. The Greenleaf 1 Facility includes
an LM5000 gas turbine manufactured by General Electric, a Vogt heat recovery
steam generator and a condensing General Electric steam turbine. The Greenleaf 1
Facility commenced commercial operation in March 1989. Since its acquisition by
the Company in April 1995, the power plant has operated at an average
availability of approximately 94.4%.

Electricity generated by the Greenleaf 1 Facility is sold to PG&E under a
30-year power sales agreement terminating in 2019 which contains payment
provisions for capacity and energy. The power sales agreement provides for a
firm capacity payment of $184 per kilowatt year for 49.2 megawatts for the term
of the agreement, so long as the Greenleaf 1 Facility delivers 80% of its firm
capacity during certain designated periods of the year, and an as-delivered
capacity payment for an additional .3 megawatts of capacity. The following
schedule sets forth the as-delivered capacity prices per kilowatt year through
1997 under the Greenleaf 1 Facility power sales agreement:

Thereafter, the payment for as-delivered capacity will be the greater of $188
per kilowatt year or PG&E's then current as-delivered capacity rate. In
addition, the power sales agreement provides for payments for up to 49.5
megawatts of electrical energy actually delivered at a price equal to PG&E's
avoided cost of energy (as determined by the CPUC). PG&E's avoided cost of
energy varies from month to month and has ranged from an annual average of 1.84c
to 2.96c per kilowatt hour since 1992. During 1995, PG&E's avoided cost of
energy averaged approximately 1.84c per kilowatt hour.

In accordance with the power sales agreement, PG&E is entitled to curtail
the Greenleaf 1 Facility during hydro-spill periods, or during periods of
negative avoided costs. PG&E may also interrupt or reduce

59
<PAGE> 63

deliveries if necessary to repair its system or because of system emergencies,
forced outages, force majeure and compliance with prudent electrical practices.

In addition to the sale of electricity to PG&E, the Greenleaf 1 Facility
sells thermal energy, in the form of hot exhaust to dry wood waste, to a thermal
host which is owned and operated by the Company. It is necessary to continue to
operate the host facility in order to maintain the Greenleaf 1 Facility's QF
status. See "-- Government Regulation."

The Greenleaf 1 Facility is located on 77 acres owned by the Company near
the rural area of Yuba City, California.

From April 21, 1995 through December 31, 1995, the Greenleaf 1 Facility
generated approximately 258,921,000 kilowatt hours of electric energy for sale
to PG&E and approximately $13.9 million in revenue.

Greenleaf 2 Facility. The Greenleaf 2 cogeneration facility (the
"Greenleaf 2 Facility") is a 49.5 megawatt natural gas-fired cogeneration
facility located near Yuba City, California. The Greenleaf 2 Facility includes a
STIG LM5000 gas turbine manufactured by General Electric and a Deltak heat
recovery steam generator. The Greenleaf 2 Facility commenced commercial
operation in December 1989. Since its acquisition by the Company in April 1995,
the power plant has operated at an average availability of approximately 95%.

Electricity generated by the Greenleaf 2 Facility is sold to PG&E under a
30-year power sales agreement terminating in 2019 which includes payment
provisions for capacity and energy. The power sales agreement provides for a
firm capacity payment of $184 per kilowatt year for 49.2 megawatts for the term
of the agreement, so long as the Greenleaf 2 Facility delivers 80% of its firm
capacity during certain designated periods of the year, and an as-delivered
capacity payment for an additional .3 megawatts of capacity. The following
schedule sets forth the as-delivered capacity prices per kilowatt year through
1997 under the Greenleaf 2 Facility power sales agreement:

In accordance with the power sales agreement, PG&E is entitled to curtail
the Greenleaf 2 Facility during hydro-spill periods or during any period of
negative avoided costs. PG&E may also interrupt or reduce deliveries if
necessary to repair its system or because of system emergencies, forced outages,
force majeure and compliance with prudent electrical practices.

In addition to the sale of electricity to PG&E, the Greenleaf 2 Facility
sells thermal energy to Sunsweet Growers, Inc. ("Sunsweet") pursuant to a
30-year contract. Sunsweet is the largest producer of dried fruit in the United
States. It is necessary to continue to operate the host facility in order to
maintain the status of the Greenleaf 2 Facility as a QF. See "-- Government
Regulation."

The Greenleaf 2 Facility is located on 2.5 acres of land under a lease from
Sunsweet, which runs concurrent with the power sales agreement.

From April 21, 1995 through December 31, 1995, the Greenleaf 2 Facility
generated approximately 276,038,000 kilowatt hours of electric energy for sale
to PG&E and approximately $14.5 million of revenue.

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<PAGE> 64

Agnews Facility

The Agnews cogeneration facility (the "Agnews Facility") is a 29 megawatt
natural gas-fired combined cycle cogeneration facility located on the East
Campus of the state-owned Agnews Developmental Center in San Jose, California.
Calpine holds a 20% ownership interest in GATX Calpine-Agnews, Inc., which is
the sole stockholder of O.L.S. Energy-Agnews, Inc. ("O.L.S. Energy-Agnews").
O.L.S. Energy-Agnews leases the Agnews Facility under a sale leaseback
arrangement. The other stockholder of GATX Calpine-Agnews, Inc. is GATX Capital
Corporation ("GATX"), which has an 80% ownership interest. In connection with
the sale leaseback arrangement, Calpine has agreed to reimburse GATX for its
proportionate share of certain payments that may be made by GATX with respect to
the Agnews Facility. The Company and GATX managed the development and financing
of the Agnews Facility, which commenced commercial operations in December 1990.

The Company managed the engineering, construction and start-up of the
Agnews Facility. The construction work was performed by Power Systems
Engineering, Inc. under a turnkey contract. The power plant consists of an
LM2500 aeroderivative gas turbine manufactured by General Electric, a Deltak
unfired heat recovery steam generator and a Shin Nippon steam turbine-generator.
Since start-up, the Agnews Facility has operated at an average availability of
approximately 96.5%.

The total cost of the Agnews Facility was approximately $39 million. The
construction financing was provided by Credit Suisse in the amount of $28.0
million. After the commencement of commercial operation, the facility was sold
to Nynex Credit Corporation under a sale leaseback arrangement with O.L.S.
Energy-Agnews. Under the sale leaseback, O.L.S. Energy-Agnews has entered into a
22-year lease, commencing March 1991, providing for the payment of a fixed base
rental, renewal options and a purchase option at fair market value at the
termination of the lease.

Electricity generated by the Agnews Facility is sold to PG&E under a
30-year power sales agreement terminating in 2021 which contains payment
provisions for capacity and energy. The power sales agreement provides for a
payment of $196 per kilowatt year for 24 megawatts of firm capacity for the term
of the agreement, so long as the Agnews Facility delivers at least 80% of its
firm capacity of 24 megawatts during certain designated periods of the year, and
an as-delivered capacity payment for an additional 4 megawatts of capacity. The
following schedule sets forth the as-delivered capacity prices per kilowatt year
through 1998 under the Agnews Facility power sales agreement:

Thereafter, the payment for as-delivered capacity will be at the greater of $188
per kilowatt year or PG&E's then current as-delivered capacity rate. In
addition, the power sales agreement provides for payments for up to 32 megawatts
of electrical energy actually delivered at a price equal to (i) through 1998,
the product of PG&E's fixed incremental energy rate and PG&E's utility electric
generation gas cost, and (ii) thereafter, PG&E's avoided cost of energy (as
determined by the CPUC). PG&E's avoided cost of energy varies from month to
month and has ranged from an annual average of 1.84c to 2.96c per kilowatt hour
since 1992. During 1995, PG&E's avoided cost of energy averaged approximately
1.84c per kilowatt hour.

Under certain circumstances, PG&E may curtail energy deliveries for up to
1,000 off-peak hours per year. During 1995, PG&E curtailed the energy purchased
under the power sales agreement by 1,000 hours. The Company currently expects
the maximum amount of curtailment allowed under the agreement during 1996.

In addition to the sale of electricity to PG&E, the Agnews Facility
produces and sells electricity and approximately 7,000 pounds per hour of steam
to the Agnews Developmental Center pursuant to a 30-year energy service
agreement. The energy service agreement provides that the State of California
will purchase from the Agnews Facility all of its requirements for steam (up to
a specified maximum) and for electricity

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<PAGE> 65

(which has historically been less than one megawatt per year) for the East
Campus of the Agnews Developmental Center for the term of the agreement. Steam
sales are priced at the cost of production for the Agnews Developmental Center.
Electricity sales are priced at the rates that would otherwise be paid to PG&E
by the Agnews Developmental Center. The State of California is required to
utilize the minimum amount of steam required to maintain the Agnews Facility's
QF status. See "-- Government Regulation."

The supply of natural gas for the Agnews Facility is currently provided
under a full requirements fuel supply agreement between O.L.S. Energy-Agnews and
Amoco Energy Trading Corporation ("Amoco") which expires June 30, 1997. The
Company believes that, upon expiration of this fuel supply agreement, it will be
able to obtain a sufficient quantity of natural gas to operate the Agnews
Facility for the remaining term of the power sales agreement. Intrastate
transportation is provided under a firm gas transportation agreement with PG&E
expiring in June 1997.

The Agnews Facility is operated by the Company under an operating and
maintenance agreement pursuant to which the Company is reimbursed for certain
costs and is entitled to a fixed annual fee and an incentive payment based on
performance. This agreement has an initial term of six years expiring on
December 31, 1996 and may be automatically renewed for an additional six-year
term, provided certain performance standards are met, and thereafter upon
mutually agreeable terms. The Company expects the contract will be renewed on
December 31, 1996.

The Agnews Facility is located on 1.4 acres of land leased from the Agnews
Development Center under the terms of a 30-year lease that expires in 2021. This
lease provides for rental payments to the State of California on a fixed payment
basis until January 1, 1999, and thereafter based on the gross revenues derived
from sales of electricity by the Agnews Facility, as well as a purchase option
at fair market value.

During 1995, the Agnews Facility generated approximately 225,683,000
kilowatt hours of electrical energy and total revenue of $10.8 million. In 1995,
the Company recognized a loss of approximately $82,000 as a result of the
Company's 20% ownership interest and recorded revenue of $1.5 million for
services performed under the operating and maintenance agreement.

Watsonville Facility

The Watsonville cogeneration facility (the "Watsonville Facility") is a
28.5 megawatt natural gas-fired combined cycle cogeneration facility located in
Watsonville, California. On June 29, 1995, the Company acquired the operating
lease for this facility for $900,000 from Ford Motor Credit Company. Under the
terms of the lease, rent is payable each month from July through December. The
lease terminates on December 29, 2009. The Watsonville Facility commenced
commercial operation in May 1990. The power plant consists of a General Electric
LM2500 gas turbine, a Deltak heat recovery steam generator and a Shin Nippon
steam turbine. Since its acquisition by the Company in June 1995, the power
plant has operated at an average availability of approximately 96.5%.

Electricity generated by the Watsonville Facility is sold to PG&E under a
20-year power sales agreement terminating in 2009 which contains payment
provisions for capacity and energy. The power sales agreement provides for a
payment of $178 per kilowatt year for 20.9 megawatts of firm capacity for the
term of the agreement, so long as the Watsonville Facility delivers at least 80%
of its firm capacity of 20.9 megawatts during certain designated periods of the
year, and an as-delivered capacity payment for an additional 7.6 megawatts of
capacity. In addition, the power sales agreement provides for payments for up to
28.5 megawatts of electrical energy actually delivered. Through April of 2000,
1% of energy will be sold under the fixed energy price schedule set forth below,
and 99% of the energy will be sold at PG&E's avoided cost of energy. The
following schedule sets forth the fixed average energy prices (expressed in
cents per kilowatt

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<PAGE> 66

hour) and the as-delivered capacity prices per kilowatt year through 2000 for
energy deliveries under the Watsonville Facility power sales agreement:

<TABLE>
<CAPTION>
ENERGY AS-DELIVERED
YEAR PRICE CAPACITY PRICE
-------------------------------------------- ------- --------------
<S> <C> <C>
1996........................................ 12.24c $176
1997........................................ 13.14c $188
1998........................................ 13.90c $188
1999........................................ 13.90c $188
2000........................................ 13.90c $188
</TABLE>

Thereafter, PG&E will pay for energy delivered at prices equal to PG&E's avoided
cost of energy (as determined by the CPUC), and will pay for as-delivered
capacity at the greater of $188 per kilowatt year or PG&E's then current
as-delivered capacity rate. PG&E's avoided cost of energy varies from month to
month and has ranged from an annual average of 1.84c to 2.96c per kilowatt hour
since 1992. During 1995, PG&E's avoided cost of energy averaged approximately
1.84c per kilowatt hour.

Under certain circumstances, PG&E may curtail energy deliveries for a block
of up to 400 hours between January 1 and April 15 and an additional 900 off-peak
hours from October 1 though April 30. From June 29, 1995 through December 31,
1995, PG&E curtailed energy purchases of 212 hours under the power sales
agreement.

In addition to the sale of electricity to PG&E, during 1995 the Watsonville
Facility produced and sold steam to two thermal hosts, Norcal Frozen Foods, Inc.
("Norcal") and Farmers Processing, both food processors. In August 1995, Norcal
sold its facility to a subsidiary of Dean Foods ("Dean Foods"), which closed the
facility on February 9, 1996. The lessor of the Watsonville Facility intends to
construct a water distillation facility on the site of the Watsonville Facility
to replace the Dean Foods food processing facility. This facility will be
operated by the Company with operation scheduled to commence in July 1996. It is
necessary to continue to operate the host facilities in order to maintain the
Watsonville Facility's QF status. See "-- Government Regulation."

Amoco is the supplier of natural gas to the Watsonville Facility. The
Company has negotiated a contract with Amoco, which it expects to execute by
June 1, 1996 and which will be effective through June 30, 1997. In the interim,
the Company has executed a series of monthly contracts with Amoco. PG&E provides
firm gas transportation to the Watsonville Facility under a contract expiring
June 30, 1997. The Company believes that upon expiration of this fuel supply
agreement, it will be able to obtain a sufficient quantity of natural gas to
operate the Watsonville Facility for the remaining term of the power sales
agreement.

The Watsonville Facility is located on 1.8 acres of land leased from Dean
Foods under the terms of a 30-year lease expiring in 2010.

For the period from June 29, 1995 to December 31, 1995, the Watsonville
Facility generated approximately 117,147,000 kilowatt hours of electrical energy
for sale to PG&E and approximately $5.9 million in revenue.

West Ford Flat Facility

The West Ford Flat geothermal facility (the "West Ford Flat Facility")
consists of a 27 megawatt geothermal power plant and associated steam fields
located in the eastern portion of The Geysers area of northern California. The
West Ford Flat Facility includes a power plant consisting of two turbines
manufactured by Mitsubishi Heavy Industries, Inc. with rotors remanufactured by
ABB Industries, Inc., two generators manufactured by Electric Machinery, Inc.,
and seven production wells and steam leases. The West Ford Flat Facility
commenced commercial operation in December 1988. Since start-up, the West Ford
Flat Facility has operated at an average availability of approximately 98%.

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<PAGE> 67

Electricity generated by the West Ford Flat Facility is sold to PG&E under
a 20-year power sales agreement terminating in 2008 which contains payment
provisions for capacity and energy. The power sales agreement provides for a
firm capacity payment of $167 per kilowatt year for 27 megawatts of firm
capacity for the term of the agreement, so long as the West Ford Flat Facility
delivers 80% of its firm capacity during certain designated periods of the year.
In addition, the power sales agreement provides for energy payments for
electricity actually delivered based on a fixed price derived from a scheduled
forecast of energy prices over the initial ten-year term of the agreement ending
December 1998. The schedule of fixed average energy prices (expressed in cents
per kilowatt hour) in effect through 1998 under the West Ford Flat Facility
power sales agreement is as follows:

<TABLE>
<CAPTION>
ENERGY
YEAR PRICE
-------------------------------------------------------- ------
<S> <C>
1996.................................................... 12.89c
1997.................................................... 13.83c
1998.................................................... 13.83c
</TABLE>

Thereafter, PG&E is required to pay for electrical energy actually delivered at
prices equal to PG&E's avoided cost of energy (as determined by the CPUC).
PG&E's avoided cost of energy varies from month to month and has ranged from an
annual average of 1.84c to 2.96c per kilowatt hour since 1992. During 1995,
PG&E's avoided cost of energy averaged approximately 1.84c per kilowatt hour.
The Company cannot accurately predict the avoided cost of energy prices that
will be in effect at the expiration of the fixed price period under this
agreement.

Under certain circumstances, PG&E may curtail energy deliveries for up to
1,000 off-peak hours per year. During 1995, PG&E curtailed the energy purchased
under this agreement by 1,000 hours. In the event of any such curtailment, the
Company's results of operations may be materially adversely affected. The
Company currently expects the maximum amount of curtailment allowed under the
agreement during 1996.

The Company believes that the geothermal reserves that supply energy for
use by the West Ford Flat Facility will be sufficient to operate at full
capacity for the entire term of the power sales agreement due principally to
high reservoir pressures, low projected decline rates, limited development in
adjacent areas and the substantial productive acreage dedicated to the West Ford
Flat Facility.

The West Ford Flat Facility is located on 267 acres of leased land located
in The Geysers. For a description of the leases covering the properties located
in The Geysers, see "-- Properties."

During 1995, the West Ford Flat Facility generated approximately
216,614,000 kilowatt hours of electrical energy for sale to PG&E and
approximately $29.4 million of revenue.

Bear Canyon Facility

The Bear Canyon facility (the "Bear Canyon Facility") consists of a 20
megawatt geothermal power plant and associated steam fields located in the
eastern portion of The Geysers area of northern California, two miles south of
the West Ford Flat Facility. The Bear Canyon Facility includes a power plant
consisting of two turbine generators manufactured by Mitsubishi Heavy
Industries, Inc. with rotors remanufactured by ABB Industries, Inc., as well as
eight production wells, an injection well and steam reserves. The Bear Canyon
Facility commenced commercial operation in October 1988. Since start-up, the
Bear Canyon Facility has operated at an average availability of approximately
98.4%.

Electricity generated by the Bear Canyon Facility is sold to PG&E under two
10 megawatt, 20-year power sales agreements terminating in 2008 which contain
payment provisions for capacity and energy. One of the power sales agreements
provides for a firm capacity payment of $156 per kilowatt year on four megawatts
for the term of the agreement, so long as the Bear Canyon Facility delivers 80%
of its firm capacity during certain designated periods of the year, and an
as-delivered capacity payment for the additional six megawatts of capacity. The
other agreement provides for an as-delivered capacity payment for the entire 10
megawatts. Both agreements provide for energy payments for electricity actually
delivered based on a fixed price basis

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<PAGE> 68

through the initial ten-year term of the agreement ending September 1998. The
following schedule sets forth the fixed average energy prices (expressed in
cents per kilowatt hour) and the as-delivered capacity prices per kilowatt year
through 1998 for energy deliveries under the Bear Canyon Facility power sales
agreements:

<TABLE>
<CAPTION>
ENERGY AS-DELIVERED
YEAR PRICE CAPACITY PRICE
-------------------------------------------- ------- --------------
<S> <C> <C>
1996........................................ 12.89c $176
1997........................................ 13.83c $188
1998........................................ 13.83c $188
</TABLE>

The Company believes that the geothermal reserves for the Bear Canyon
Facility will be sufficient to operate at full capacity for substantially all of
the remaining term of the power sales agreements due principally to high
reservoir pressures, low projected decline rates, limited development in
adjacent areas and the substantial productive acreage dedicated to the Bear
Canyon Facility.

The Bear Canyon Facility is located on 284 acres of land located in The
Geysers covered by two leases, one with the State of California and the other
with a private landowner. For a description of the leases covering the
properties located at The Geysers, see "-- Properties."

During 1995, the Bear Canyon Facility generated approximately 164,847,000
kilowatt hours of electrical energy and approximately $21.8 million of revenue.

Aidlin Facility

The Aidlin geothermal facility (the "Aidlin Facility") consists of a 20
megawatt geothermal power plant and associated steam fields located in the
western portion of The Geysers area of northern California. The Company holds an
indirect 5% ownership interest in the Aidlin Facility. The Company's ownership
interest is held in the form of a 10% general partnership interest in a limited
partnership (the "Aidlin Partnership"), which in turn owns a 50% ownership
interest, as both a limited and general partner, in Geothermal Energy Partners
Ltd. ("GEP"), a limited partnership which is the owner of the Aidlin Facility.
MetLife Capital Corporation owns the remaining 90% interest in the Aidlin
Partnership as a limited partner. The remaining 50% of GEP is owned by
subsidiaries of Mission Energy Company and Sumitomo Corporation. The Aidlin
Facility commenced commercial operation in May 1989.

The Aidlin Facility includes a power plant consisting of two turbine
generators manufactured by Fuji Electric and ABB Industries, Inc., as well as
seven production wells and two injection wells. Since start-up, the Aidlin
Facility has operated at an average availability of approximately 99%.

The construction of the Aidlin Facility was financed with a $59.4 million
term loan provided by Prudential, which bears interest at a fixed rate of 10.48%
per annum and matures on June 30, 2008 according to a specified amortization
schedule.

Electricity generated by the Aidlin Facility is sold to PG&E under two 10
megawatt, 20-year power sales agreements terminating in 2009 which contain
payment provisions for capacity and energy. The power sales

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<PAGE> 69

agreements provide for an aggregate firm capacity payment for 17 megawatts of
$167 per kilowatt year for the term of the agreements, so long as the Aidlin
Facility delivers 80% of its capacity during certain designated periods of the
year. In addition, the Aidlin Facility power sales agreements provide for energy
payments for 20 megawatts based on a schedule of fixed energy prices (expressed
in cents per kilowatt hour) in effect through 1999 as follows:

<TABLE>
<CAPTION>
ENERGY
YEAR PRICE
-------------------------------------------------------- ------
<S> <C>
1996.................................................... 12.89c
1997.................................................... 13.83c
1998.................................................... 13.83c
1999.................................................... 13.83c
</TABLE>

Thereafter, PG&E is required to pay for electrical energy actually delivered at
prices equal to PG&E's avoided cost of energy (as determined by the CPUC).
PG&E's avoided cost of energy varies from month to month and has ranged from an
annual average of 1.84c to 2.96c per kilowatt hour since 1992. During 1995,
PG&E's avoided cost of energy averaged approximately 1.84c per kilowatt hour.
The Company cannot accurately predict the avoided cost of energy that will be in
effect at the expiration of the fixed price period under this agreement.

The output of the Aidlin Facility is expected to decline over the remaining
life of the facility unless additional reserves are developed on existing or
adjacent leases and enhanced water injection projects are successful in reducing
field declines. See "Risk Factors -- Risks Related to the Development and
Operation of Geothermal Energy Resources."

The Aidlin Facility is operated and maintained by the Company under an
operating and maintenance agreement pursuant to which the Company is reimbursed
for certain costs and is entitled to an incentive payment based on project
performance. This agreement expires on December 31, 1999.

The Aidlin Facility is located on 713.8 acres of land located in The
Geysers, which is leased by GEP from a private landowner. The lease will remain
in force so long as geothermal steam is produced in commercial quantities.

During 1995, the Aidlin Facility generated approximately 174,087,000
kilowatt hours of electrical energy and revenue of $21.7 million. In 1995, the
Company recognized revenue of approximately $277,000 as a result of the
Company's 5% ownership interest and $3.5 million for services performed under
the operating and maintenance agreement.

STEAM FIELDS

Thermal Power Company Steam Fields

The Company acquired Thermal Power Company on September 9, 1994 for a
purchase price of $66.5 million. Thermal Power Company owns a 25% undivided
interest in certain geothermal steam fields located at The Geysers in northern
California (the "Thermal Power Company Steam Fields"). Union Oil Company of
California ("Union Oil") owns the remaining 75% interest in the steam fields and
operates and maintains the steam fields. The Thermal Power Company Steam Fields
include the leasehold rights to 13,908 acres of steam fields which supply steam
to 12 PG&E power plants located in The Geysers and include 247 production wells,
19 injection wells and 52 miles of steam-transporting pipeline. See
"-- Properties." The 12 plants have a nameplate capacity of 978 megawatts and
currently have the capability to operate at 604 megawatts providing the Company
with an effective interest in 151 megawatts. The steam fields commenced
commercial operation in 1960.

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<PAGE> 70

The Thermal Power Company Steam Fields produce steam for sale to PG&E under
a long-term steam sales agreement. Under this steam sales agreement, the Company
is paid on the basis of the amount of electricity produced by the power plants
to which steam is supplied. PG&E is obligated to use its best efforts to operate
its power plants to maintain monthly and annual steam field capacity. The price
paid for steam under the steam sales agreement is determined according to a
formula that consists of the average of three indices multiplied by a fixed
price of 1.65c per kilowatt hour. The indices used are the Producer Price Index
for Crude Petroleum, the Producer Price Index for Natural Gas and the Consumer
Price Index ("CPI"). The price of steam under the steam sales agreement in 1995
was 1.647c per kilowatt hour. In addition, the Company receives a monthly fee
for effluent disposal and maintenance. During 1995, such monthly fee was
$144,000 per month.

In 1995 and early 1996, the Company, Union Oil and PG&E entered into
certain short-term arrangements under which PG&E purchased a portion of the
steam that PG&E would have curtailed under the steam sales agreement at a lower
price. Such parties are currently in the process of negotiating an ongoing
alternative pricing arrangement for steam that PG&E is entitled to curtail in
the future.

The steam sales agreement with PG&E also provides for offset payments,
which constitute a remedy for insufficient steam. Under the steam sales
agreement, the Company is required to pay PG&E for the unamortized costs,
including site clean-up, removal and abandonment costs, of power plants that are
installed but are unused as a result of steam supply deficiency. The offset
payments are calculated based upon a fixed amortization schedule for all power
plants, which may be adjusted for future capital expenditures, and upon the
steam fields' capacity in megawatts. In accordance with the steam sales
agreement, the Company makes offset payments at a reduced rate until total
offsets calculated since July 1, 1991 equal $15 million. Accordingly, the
Company's share of offsets in 1995 were $757,000. In approximately 1999, when
total offsets may exceed $15 million in accordance with the agreement, the
Company's share of offset payments to PG&E would be approximately 2 1/2 times
their current rate (as calculated at the current steam field capacity).

In accordance with the steam sales agreement, PG&E may curtail the power
plants which receive steam in order to produce energy from lower cost sources.
PG&E is contractually obligated to operate all of the power plants at a minimum
of 40% of the field capacity during any given year, and at 25% of the field
capacity in any given month. During 1995, the Thermal Power Company Steam Fields
experienced extensive curtailment of steam production due to low gas prices and
abundant hydro power. The Company receives a monthly fee for PG&E's right to
curtail its power plants. Such fee was $12,800 per month during 1995. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

The steam sales agreement with PG&E terminates two years after the closing
of the last operating power plant. In addition, PG&E may terminate the contract
earlier with a one-year written notice. If PG&E terminates in accordance with
the steam sales agreement, the Company will provide capacity maintenance
services for five years after the termination date, and will retain a right of
first refusal to purchase the PG&E facilities at PG&E's unamortized cost.
Alternatively, the Company may terminate the agreement with a two-year written
notice to PG&E. If the Company terminates, PG&E has the right to take assignment
of the Thermal Power Company Steam Fields' facilities on the date of
termination. In that case, the Company would continue to pay offset payments for
three years following the date of termination. Under the steam sales agreement,
PG&E may retire older power plants upon a minimum of six-months' notice. The
Company is unable to predict PG&E's schedule for the retirement of such power
plants, which may change from time to time. If steam is abandoned (i.e., cannot
be transported to the remaining plants), the abandoned steam may be delivered
for use to other PG&E power plants, subject to existing contract conditions, or
to other customers upon closure of a PG&E power plant.

The Thermal Power Company Steam Fields currently supply steam sufficient to
operate the PG&E power plants at approximately 60% of their combined nameplate
capacity. This percentage reflects a decline in productivity since the
commencement of operations. While it is not possible to accurately predict
long-term steam field productivity, the Company has estimated that the current
annual rate of decline in steam field productivity of the Thermal Power Company
Steam Fields was approximately 9% until 1995, during which year extensive
curtailment interrupted the decline trend. The Company expects steam field
productivity to

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<PAGE> 71

continue to decline in the future. The Company plans to work with Union Oil and
PG&E to partially offset the expected rate of decline by the development of
water injection projects and power plant improvements.

During 1995, the PG&E power plants produced 2,688,176,000 kilowatt hours of
electrical energy of which the Company's 25% share is 672,044,000 kilowatt hours
for approximately $11.0 million of revenue.

PG&E Unit 13 and Unit 16 Steam Fields

The Company holds the leasehold rights to 1,631 acres of steam fields (the
"PG&E Unit 13 and Unit 16 Steam Fields") that supply steam to PG&E's Unit 13
power plant (the "Unit 13") and PG&E's Unit 16 power plant (the "Unit 16"), all
of which are located in The Geysers. See "-- Properties." Unit 13 and Unit 16
have nameplate capacities of 134 and 113 megawatts, respectively, and currently
operate at outputs of approximately 100 and 78 megawatts, respectively. The PG&E
Unit 13 Steam Field includes 956 acres, 30 production wells, two injection wells
and five miles of pipeline, and commenced commercial operations in May 1980. The
PG&E Unit 16 Steam Field includes 675 acres, 19 producing wells, two injection
wells, and three miles of pipeline, and commenced commercial operation in
October 1985.

The PG&E Unit 13 and Unit 16 Steam Fields produce steam for sale to PG&E
under long-term steam sales agreements. Under the steam sales agreements with
PG&E, the Company is paid for steam on the basis of the amount of electricity
produced by Unit 13 and Unit 16. The price paid for steam under the PG&E Unit 13
and Unit 16 Steam Fields agreements is determined according to a formula that is
essentially a weighted average of PG&E's fossil (oil and gas) fuel price and
PG&E's nuclear fuel price. The price of steam for 1995 was 1.207c per kilowatt
hour. The price for 1996 is expected to be approximately .995c. The Company
receives an additional .05c per kilowatt hour from PG&E for the disposal of
liquid effluents produced at Unit 13 and Unit 16.

During conditions of hydro-spill, PG&E may curtail energy deliveries from
Unit 13 and Unit 16 which would reduce deliveries of steam under this agreement.
Curtailments are primarily the result of a higher degree of precipitation during
the period, which results in higher levels of energy generation by hydroelectric
power facilities that supply electricity for sale by PG&E. In the event of any
such curtailment, the Company's results of operations may be materially
adversely affected. PG&E curtailed approximately 64,000,000 kilowatt hours under
the steam sales agreement during 1995. The Company currently expects
approximately the same amount of curtailment under the agreement during 1996
that was experienced in 1995.

The steam sales agreement with PG&E continues in effect for as long as
either Unit 13 or Unit 16 remains in commercial operation, which depends on
maintaining the productive capacity of the respective steam fields. However,
PG&E may terminate the agreement if the quantity, quality or purity of the steam
is such that the operation of Unit 13 or Unit 16 becomes economically
impractical. The Company currently estimates that the productive capacity of the
PG&E Unit 13 and Unit 16 Steam Fields is approximately 22 years. However, no
assurance can be given that the operation of either Unit 13 or Unit 16 will not
become economically impractical at any time during these periods.

The Company is required to supply a sufficient quantity of steam of
specified quality to Unit 16. If an insufficient quantity of steam is delivered,
the Company may be subject to penalty provisions, including suspension of PG&E's
obligation to pay for steam delivered. Specifically, if the Company fails to
deliver to Unit 16 in any calendar month a sufficient quantity of steam adequate
to operate the power plant at or above a capacity factor of 50%, no payment
shall be made for steam delivered to such Unit during such month until the cost
of that Unit has been completely amortized by PG&E.

In order to increase the efficiency of Unit 13 by approximately 20%, the
Company agreed to purchase new rotors for approximately $10 million. In
exchange, PG&E agreed to amend the steam sales agreement to remove the penalty
provision for a failure to deliver a sufficient quantity of steam to Unit 13 and
to require PG&E to operate at variable pressure operations which will optimize
production at the PG&E Unit 13 and Unit 16 Steam Fields.

The PG&E Unit 13 and Unit 16 Steam Fields currently supply steam sufficient
to operate Unit 13 and Unit 16 at approximately 72% of their combined nameplate
capacities. This percentage reflects a decline in

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<PAGE> 72

the productivity of the PG&E Unit 13 and Unit 16 Steam Fields since the
commencement of operations of Unit 13 and Unit 16. While it is not possible to
accurately predict long-term steam field productivity, the Company has estimated
that the annual rate of decline in steam field productivity of the PG&E Unit 13
and Unit 16 Steam Fields was approximately 10% until curtailment of neighboring
plants and Unit 13 and Unit 16 in 1995 reduced the decline to zero. The Company
expects steam field productivity to continue to decline in the future, but at
decreasing annual rates of decline. The Company considered these declines in
steam field productivity in developing its original projections for the PG&E
Unit 13 and Unit 16 Steam Fields at the time the Company acquired its initial
interest in 1990. The Company plans to partially offset the expected rate of
decline by implementing enhanced water injection and power plant improvements.

During 1995, the PG&E Unit 13 and Unit 16 Steam Fields produced sufficient
steam to permit Unit 13 and Unit 16 to produce approximately 1,296,900,000
kilowatt hours of electrical energy and approximately $16.3 million of revenue.

SMUDGEO #1 Steam Fields

The Company holds the leasehold rights to 394 acres of steam fields that
supply steam to the power plant for SMUD SMUDGEO #1 steam fields (the "SMUDGEO
#1 Steam Fields"). See "-- Properties." The SMUD power plant has a nameplate
capacity of 72 megawatts and currently operates at an output of 59 megawatts.
The SMUDGEO #1 Steam Fields include 19 producing wells, one injection well and
two miles of pipeline. Commercial operation of the SMUD power plant commenced in
October 1983.

The steam sales agreement with SMUD provides that SMUD will pay for steam
based upon the quantity of steam delivered to the SMUD power plant. The current
price paid for steam delivered under the steam sales agreement is $1.746 per
thousand pounds of steam, which is adjusted semi-annually based on changes in
the Gross National Product Implicit Price Deflator Index and Producers Price
Index for Fuels, Related Products and Power. SMUD may suspend payments for steam
in any month if the Company is unable to deliver 50% of the steam requirement
until the cost of the plant and related facilities have been completely
amortized by the value of such steam delivered to the plant. Based on current
estimates and analyses performed by the Company, the Company does not expect
SMUD to suspend payments for steam under this provision. The Company receives an
additional .15c per kilowatt hour from SMUD for the disposal of liquid effluents
produced at the SMUDGEO #1 Steam Fields.

The steam sales agreement with SMUD continues until the expiration or
termination of the geothermal lease covering the SMUDGEO #1 Steam Fields, which
continues for so long as steam is produced in commercial quantities. The Company
and SMUD each have the right to terminate the agreement if their respective
operations become economically impractical. In the event that SMUD exercises its
right to terminate, the Company will have no further obligation to deliver steam
to the power plants.

The SMUDGEO #1 Steam Fields currently supply steam sufficient to operate
the SMUD power plant at approximately 82% of its nameplate capacity. This
percentage reflects a decline in the productivity of the SMUDGEO #1 Steam Fields
since commencement of operations. Although the SMUDGEO #1 Steam Fields increased
in productivity in 1995 due to curtailment of neighboring plants, the Company
expects the SMUDGEO #1 Steam Fields' productivity to decline in the future.

During 1995, the SMUDGEO #1 Steam Fields produced approximately 6,600,835
thousand pounds of steam and approximately $12.3 million of revenue.

Cerro Prieto Steam Fields

On November 17, 1995, the Company entered into a series of agreements with
Constructora y Perforadora Latina, S.A. de C.V. ("Coperlasa") and certain of
Coperlasa's creditors pursuant to which the Company has agreed to invest up to
$20 million in the Cerro Prieto steam fields (the "Cerro Prieto Steam Fields")
located in Baja California, Mexico. The Cerro Prieto Steam Fields provide
geothermal steam to three geothermal power plants owned and operated by Comision
Federal de Electricidad, the Mexican national utility ("CFE").

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<PAGE> 73

The Company's investment consists of a loan of up to $18.5 million and a
$1.5 million payment for an option to purchase an equity investment in
Coperlasa.

The $18.5 million loan will be made in installments throughout 1996 and
will provide capital to Coperlasa to fund the drilling of new wells and the
repair of existing wells to meet its performance under its agreement with CFE.
The loan matures in November 1999 and bears interest at an effective rate of
18.8% per annum. Repayment of this loan will be interest only for the first 18
months. Thereafter, 100% of the cash flow generated from the sale of steam less
operating expenses and capital expenditures will be used to pay principal and
interest on the loan. The Company's loan is senior to the existing debt at
Coperlasa. On December 14, 1995, the Company paid $1.5 million for an option to
purchase a 29% equity interest in Coperlasa for $5.8 million. This option
expires in May 1997.

Pursuant to a technical services agreement, the Company receives fees for
its technical services provided to Coperlasa. In addition, if the Company is
successful in assisting Coperlasa in producing steam at a lower cost, the
Company will receive 30% of the savings.

The Cerro Prieto Steam Fields are located near the city of Mexicali, Baja
California, at the border of Baja California and the State of California. The
Cerro Prieto geothermal resource, which has been commercially produced by CFE
since 1973, provides approximately 70% of Baja California's electricity
requirements since this region is not connected to the Mexican national power
grid.

The steam sales agreement between Coperlasa and CFE was entered into in May
1991. Under this agreement, CFE pays for steam delivered up to 1,600 tons per
hour plus 10%. Payments for the steam delivered are made in Mexican pesos and
are adjusted by a formula that accounts for the increases in inflation in Mexico
and the United States as well as for the devaluation of the peso against the
U.S. dollar. This agreement has a termination date of October 2000. While the
Company believes that Coperlasa is in an advantageous position to renegotiate or
bid for the right to supply steam over a longer term, there can be no assurance
that the steam sales agreement will be extended beyond its current termination
date.

PROJECT DEVELOPMENT AND ACQUISITION

The Company is actively engaged in the development and acquisition of power
generation projects. The Company has historically focused principally on the
development and acquisition of interests in natural gas-fired cogeneration power
and geothermal projects, although projects that utilize other power generation
technologies are also considered. The Company has significant expertise in a
variety of power generation technologies and has substantial capabilities in
each aspect of the development and acquisition process, including design,
engineering, procurement, financing, construction management, fuel and resource
acquisition and operation.

PROJECT DEVELOPMENT

The development of power generation projects involves numerous elements,
including evaluating and selecting development opportunities; designing and
engineering the project; obtaining power and steam sales agreements; acquiring
necessary land rights, permits and fuel resources; obtaining financing; and
managing construction, all as more fully described below. The Company intends to
focus primarily on development opportunities where the Company is able to
capitalize on its expertise in implementing an innovative and fully integrated
approach to project development in which the Company controls the entire
development process. Utilizing this approach, the Company believes that it is
able to enhance the value of its projects throughout each stage of development
in an effort to maximize its return on investment. The Company also believes it
is able to control the costs and financial risks associated with project
development primarily by implementing this fully integrated approach and by
securing project financing and power sales agreements prior to making
significant capital investments.

Evaluation and Selection of Opportunities. The Company initially evaluates
and selects a potential development project based on a variety of factors,
including the likelihood of obtaining a power and/or steam sales agreement from
a utility, the potential for negotiating advantageous pricing terms for such an
agreement,

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the availability of rights to a favorable geographic location, and the
probability of obtaining required licenses and permits. In the development of
natural gas-fired power projects, the Company also evaluates the access to
potential fuel supplies and transportation and, in the case of cogeneration
plants, considers the proximity to industrial or commercial users of thermal
energy. For geothermal energy projects, the Company evaluates the quality and
quantity of the steam resource and the potential for the commercial exploitation
of such resource, and prepares projections regarding the future productive
capabilities thereof. The Company carefully analyzes and evaluates these factors
for each potential project to determine the project's technical and financial
viability.

Design and Engineering. Following the initial selection of an opportunity,
the Company translates the technical and commercial requirements of the project
into a conceptual design. The design becomes the foundation for selecting the
equipment configuration for the project, developing the project structure and
developing a financial plan. For natural gas-fired projects, the Company
generally will evaluate alternative methods of acquiring natural gas reserves or
gas supply contracts that would provide fuel for the life of the power sales
agreement, and will also evaluate fuel transportation requirements. For
geothermal projects, technical analysis of the resource is continued to
determine a plant configuration that will accommodate specific resource
considerations. The Company also prepares financial feasibility studies and
analyzes various structural alternatives to determine a financial plan for the
facility.

Power and Steam Sales Agreements. In the development of a power generation
facility, the Company generally seeks to obtain a long-term (i.e., 20 or 30
years) power sales agreement prior to the commencement of construction. As part
of the Company's effort to control the costs and financial risks in the
development of new projects, the Company generally does not proceed with the
active development of a project until a power sales agreement has been executed.
The power generated by the Company's projects is sold pursuant to the power
sales agreement at a pricing formula generally consisting of payments for energy
and capacity. The Company's objective is to negotiate or obtain power sales
agreements that are expected to result in adequate cash flow to fund the
project's non-recourse debt and provide income to the Company, and that present
an opportunity to achieve revenue growth through a schedule of increasing prices
for electrical energy and capacity sold in future years.

In the case of natural gas-fired combined cycle projects, a portion of the
thermal energy produced may be sold for use by industrial or other users, and
the Company would enter into a steam sales agreement for such purpose. Steam
sales agreements may require a purchaser to take at least the minimum amount of
steam necessary for the project to retain its QF status under PURPA. In the case
of geothermal energy projects in which steam is sold to a utility to produce
electricity, the Company seeks to enter into a steam sales agreement with the
utility providing for payments to the Company based on the amount of electrical
energy produced or steam delivered.

Siting, Resource Acquisition and Permitting. As part of the development
process, the Company identifies and obtains the land rights necessary to install
and operate the proposed facility. In the event the Company determines to
acquire gas reserves to fuel a gas-fired project, the Company seeks to obtain
the rights to such reserves and seeks to obtain long-term transportation
agreements as necessary. In the development of geothermal facilities, the
Company seeks to acquire the rights to geothermal steam reserves that are
believed to provide sufficient resources to operate the facility for the term of
the power or steam sales agreement. A particular site may also require that the
Company install a new electrical transmission line to deliver energy to the
existing grid.

Beginning early in the development process, the Company also seeks to
obtain all permits, licenses and other approvals required for the construction
and operation of the project, including for siting, construction and
environmental permits, rights-of-way and planning approvals.

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Project Financing. The Company's power generation projects have been
financed using a variety of leveraged financing structures, primarily consisting
of non-recourse debt and lease obligations. As non-recourse obligations, each
such obligation is structured to be fully serviced out of cash flow provided by
the project or projects, the assets of which (together with pledges of stock or
partnership interests in the entity owning the project) secure such obligations,
without recourse to the general corporate funds of the Company or its
subsidiaries or the other projects in which the Company has an interest. While
the Company intends to utilize non-recourse debt where appropriate, there can be
no assurance that market conditions and other factors will permit the same
limited equity investment by the Company or the same substantially non-recourse
nature of borrowings in future projects.

Construction. The Company manages the construction of its projects by
entering into a turnkey contract with a construction company or independently
managing the engineering, procurement and construction of its projects. Under a
turnkey contract, the contractor generally assumes the risks of cost overruns,
other than costs for changes to the project requested by the owners and
specified events beyond the control of the contractor. The turnkey contractor
manages construction through various subcontractors and retains ultimate
responsibility for the timely completion of the project and for achieving
specified performance levels. In the case of projects in which the Company
independently manages the engineering, procurement and construction, the Company
seeks to acquire a comprehensive risk management package of insurance and in no
case does the Company assume construction risks in excess of its equity
commitments.

ACQUISITION OF PROJECTS

Calpine will consider the acquisition of an interest in operating projects
as well as projects under development for which Calpine would assume
responsibility for completing the development of the project. In the acquisition
of power generation facilities, Calpine generally seeks to acquire an ownership
interest in facilities that offer the Company attractive opportunities for
revenue growth; that have existing, favorable long-term power sales agreements
with major electric utilities or major users of power (i.e., industrial
facilities); and that permit the Company to assume sole responsibility for the
operation and maintenance of the facility. In evaluating and selecting a project
for acquisition, the Company considers a variety of factors, including the type
of power generation technology utilized, the location of the project, the terms
of any existing power or thermal energy sales agreements, gas supply and
transportation agreements and wheeling agreements, the quantity and quality of
any geothermal or other natural resource involved, and the actual condition of
the physical plant. In addition, the Company assesses the past performance of an
operating project and prepares financial projections to determine the
profitability of the project. The Company generally seeks to obtain a
significant equity interest in a project and to obtain the operation and
maintenance contract for that project. Although the Company has historically
acquired interests in gas-fired power and geothermal generation facilities in
the western United States, the Company considers the acquisition of power
generation facilities utilizing other power generation technologies, as well as
facilities in other geographic locations.

DEVELOPMENT AND FUTURE PROJECTS

The Company is continually engaged in the evaluation of various
opportunities for the development and acquisition of additional power generation
facilities. However, there is no assurance the Company will be successful in the
development of power generation projects in the future. See "-- Project
Development Risks."

GILROY COGENERATION PROJECT

In May 1996, the Company signed a letter of intent with McCormick &
Company, Inc. and Gilroy Energy Company to acquire the 120 megawatt gas-fired,
cogeneration power plant owned by Gilroy Energy Company located in Gilroy,
California. The facility has been in operation since 1988. Electricity is sold
to PG&E under the terms of a long-term power sales agreement and steam is sold
to the Gilroy Foods, Inc. facility located adjacent to the power plant. The
Company is currently negotiating the terms of a definitive asset purchase
agreement. The Company expects to consummate this acquisition in the third
quarter of 1996. Consummation of such acquisition is subject to a number of
conditions. There can be no assurance that the Company will be successful in
completing the asset purchase agreement or that the anticipated schedule for
financing and other conditions will be met.

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PASADENA COGENERATION PROJECT

Calpine was selected by Phillips Petroleum Company ("Phillips") to
negotiate for the development of a 220 megawatt gas-fired cogeneration project
at the Phillips Houston Chemical Complex ("HCC") located in Pasadena, Texas (the
"Pasadena Cogeneration Project"). In July 1995 and March 1996, the Company
entered into Energy Project Development Agreements with Phillips pursuant to
which the Company and Phillips propose to enter into 20-year agreements for the
purchase and sale of all of the HCC's "fixed steam" and "external electricity"
requirements. Pursuant to the Energy Project Development Agreements, the Company
has agreed to make $3.5 million of capital expenditures on the Pasadena
Cogeneration Project during 1996. In addition, the Company has provided a $3.0
million letter of credit to Phillips to secure the performance under the Energy
Project Development Agreement. The Company is currently seeking to obtain power
sales agreements for the additional electricity to be generated by this project.
The Company expects to obtain financing and commence construction in September
1996, with commercial operation scheduled to begin September 1998. However,
there can be no assurances that the Company will be successful in completing
either the agreements with Phillips or any additional power sales agreements or
that the anticipated schedule for financing and construction will be met.

GLASS MOUNTAIN GEOTHERMAL PROJECT

Calpine is pursuing the development of a geothermal power project at Glass
Mountain, which is located in northern California about 25 miles south of the
Oregon border (the "Glass Mountain Project"). Glass Mountain is believed to be
the largest undeveloped geothermal resource in the United States. In area, the
resource is larger than The Geysers, where approximately 1,200 megawatts of
capacity is operating. The Company believes that Glass Mountain has an estimated
potential in excess of 1,000 megawatts.

In August 1994, the Company entered into a partnership with Trans-Pacific
Geothermal Glass Mountain, Ltd. ("TGC") to construct and operate a 30 megawatt
project at Glass Mountain. TGC had previously signed a memorandum of
understanding with Bonneville Power Administration ("BPA") to develop the
project at Vale, Oregon. BPA consented on August 25, 1994 to the assignment of
the 30 megawatt geothermal project to the Calpine partnership and the relocation
of the project to Glass Mountain. The memorandum of understanding contemplates
execution of a 45-year power purchase agreement subject to satisfaction of
certain conditions precedent and includes an option for an additional 100
megawatts.

Subject to the execution of the power purchase agreement with BPA, the
Company plans to begin construction of an initial 45 megawatt phase of the Glass
Mountain Project in 1998. Commercial operation is planned for 2000. There can be
no assurances, however, that the Company and BPA will enter into a definitive
agreement, that this project will be completed on this schedule, if at all, or
that commercial operation of this project will be successful.

In March 1996, the Company completed the acquisition of certain Glass
Mountain geothermal leases held by FMRP. As a result, the Company currently
holds an interest in approximately 25,000 acres of federal geothermal leases at
Glass Mountain. See "-- Properties."

COSO GEOTHERMAL PROJECT

In January 1992, the Company was selected by the Los Angeles Department of
Water and Power (the "Department") to negotiate for the development of up to 150
megawatts of electric generating capacity utilizing geothermal energy from the
Department's Coso geothermal leaseholds. Data from four deep exploration wells
and a number of shallow, temperature gradient wells indicate that a productive
area could exist with a capacity to support 200 megawatts or more. The resource
is on land leased by the Department from the United States Bureau of Land
Management ("BLM"), which are subleased to the Company.

The Company has entered into definitive agreements with the Department in
1995 which grant the Company the right to develop the Department's Coso
geothermal leaseholds, located in Inyo County, California. The Company has been
granted the right to produce steam or electricity for sale to third parties. In
addition, the agreements include an amended power sales agreement with the
Department which grants the

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Department an option to purchase up to 150 megawatts of electricity from the
geothermal resource. The ordinance approving the agreements has been passed by
the Los Angeles City Council and approved by the Mayor.

In January 1996, certain litigation was filed against the Department
seeking to compel the Department to submit the agreements entered into with the
Company to a public bidding procedure in accordance with the Charter of the City
of Los Angeles. The Company is unable to predict the outcome of the litigation
or the effect the outcome will have on the agreements.

NAVAJO SOUTH COAL PROJECT

Calpine, BHP Minerals International Inc. and BHP Power Inc. have entered
into a memorandum of understanding to assess the development of the Navajo South
Project, a 1,700 megawatt coal-fired power generation facility in the Four
Corners area of New Mexico. It is anticipated that this new power plant will
provide electricity to the west and southwest United States markets. BHP
Minerals International Inc. is the owner and operator of three coal mines in the
Four Corners area of New Mexico. One of these, the Navajo Mine, is located on
the Navajo Reservation.

INDONESIAN GEOTHERMAL PROJECT

Calpine plans to develop geothermal facilities in the Lampung Province of
Indonesia, located in southern Sumatra. The geothermal resource at Ulubelu is
estimated to have potential capacity in excess of 500 megawatts. The Company
anticipates that the facility would sell electricity to Perusahaan Umum Listrik
Negara ("PLN"), the state-owned electric company. The first phase of the project
is expected to be 110 megawatts.

The Company's joint venture partner will be PT. Dharmasatrya Arthasentosa
("DATRA"), a company with interests in coal mining and other ventures. The
Company expects that it will be the project's managing partner, with
responsibility for the design, construction and operation of the power plant.
The ownership structure, as planned, will be a joint venture with DATRA in which
the Company would be the managing partner and hold at least a 50% equity
interest, and as much as 85% of the project. DATRA would hold up to 50% of the
project.

In March 1996, the Company and DATRA entered into a joint venture agreement
to develop Ulubelu. The Company and DATRA are negotiating with National Resource
Agency Pertamina ("Pertamina") regarding resource development. Deep test well
drilling and flow tests by Pertamina are planned during 1996 at Ulubelu.
Commercial operation is anticipated in 2000 for the initial phase of the
project. There can be no assurances, however, that this transaction will be
consummated on these terms, if at all, that the proposed timetable will be met
or that commercial operation of these resources will be feasible.

POWER SERVICES

In 1995, Calpine received approval from the FERC to conduct power marketing
activities. The Company believes that a power marketing capability enhances its
business strategy of providing low-cost, fully integrated power generation
services. In view of the regulatory initiatives currently being adopted to
increase competition in the domestic power industry, Calpine estimates that
there will be significant opportunities to produce and sell power to end-users
and that a power marketing capability is integral to this effort.

Calpine intends to complement its power marketing capability by selling
power from existing power generation facilities in addition to facilities which
may be acquired or developed in the future. This approach is designed to enhance
the revenue and earning potential of the Company's assets and to expand
Calpine's customer base and market presence. In addition, the Company intends to
utilize its in-house technical and market knowledge to pursue selected trading
and risk management opportunities. Calpine intends to apply risk management
practices in the conduct of its power marketing activities, including the
prudent application of hedging techniques, information systems and internal
control measures.

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GOVERNMENT REGULATION

The Company is subject to complex and stringent energy, environmental and
other governmental laws and regulations at the federal, state and local levels
in connection with the development, ownership and operation of its energy
generation facilities. Federal laws and regulations govern transactions by
electrical and gas utility companies, the types of fuel which may be utilized by
an electric generating plant, the type of energy which may be produced by such a
plant and the ownership of a plant. State utility regulatory commissions must
approve the rates and, in some instances, other terms and conditions under which
public utilities purchase electric power from independent producers and sell
retail electric power. Under certain circumstances where specific exemptions are
otherwise unavailable, state utility regulatory commissions may have broad
jurisdiction over non-utility electric power plants. Energy producing projects
also are subject to federal, state and local laws and administrative regulations
which govern the emissions and other substances produced, discharged or disposed
of by a plant and the geographical location, zoning, land use and operation of a
plant. Applicable federal environmental laws typically have both state and local
enforcement and implementation provisions. These environmental laws and
regulations generally require that a wide variety of permits and other approvals
be obtained before the commencement of construction or operation of an energy-
producing facility and that the facility then operate in compliance with such
permits and approvals.

FEDERAL ENERGY REGULATION

PURPA

The enactment in 1978 of PURPA and the adoption of regulations thereunder
by FERC provided incentives for the development of cogeneration facilities and
small power production facilities (those utilizing renewable fuels and having a
capacity of less than 80 megawatts).

A domestic electricity generating project must be a QF under FERC
regulations in order to take advantage of certain rate and regulatory incentives
provided by PURPA. PURPA exempts owners of QFs from PUHCA, and exempts QFs from
most provisions of the Federal Power Act (the "FPA") and, except under certain
limited circumstances, state laws concerning rate or financial regulation. These
exemptions are important to the Company and its competitors. The Company
believes that each of the electricity generating projects in which the Company
owns an interest currently meets the requirements under PURPA necessary for QF
status. Most of the projects which the Company is currently planning or
developing are also expected to be QFs.

PURPA provides two primary benefits to QFs. First, QFs generally are
relieved of compliance with extensive federal, state and local regulations that
control the financial structure of an electric generating plant and the prices
and terms on which electricity may be sold by the plant. Second, FERC's
regulations promulgated under PURPA require that electric utilities purchase
electricity generated by QFs at a price based on the purchasing utility's
"avoided cost," and that the utility sell back-up power to the QF on a non-
discriminatory basis. The term "avoided cost" is defined as the incremental cost
to an electric utility of electric energy or capacity, or both, which, but for
the purchase from QFs, such utility would generate for itself or purchase from
another source. FERC regulations also permit QFs and utilities to negotiate
agreements for utility purchases of power at rates lower than the utility's
avoided costs. Due to increasing competition for utility contracts, the current
practice is for most power sales agreements to be awarded at a rate below
avoided cost. While public utilities are not explicitly required by PURPA to
enter into long-term power sales agreements, PURPA helped to create a regulatory
environment in which it has been common for long-term agreements to be
negotiated.

In order to be a QF, a cogeneration facility must produce not only
electricity, but also useful thermal energy for use in an industrial or
commercial process for heating or cooling applications in certain proportions to
the facility's total energy output and must meet certain energy efficiency
standards. Finally, a QF (including a geothermal or hydroelectric QF or other
qualifying small power producer) must not be controlled or more than 50% owned
by an electric utility or by most electric utility holding companies, or a
subsidiary of such a utility or holding company or any combination thereof.

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The Company endeavors to develop its projects, monitor compliance by the
projects with applicable regulations and choose its customers in a manner which
minimizes the risks of any project losing its QF status. Certain factors
necessary to maintain QF status are, however, subject to the risk of events
outside the Company's control. For example, loss of a thermal energy customer or
failure of a thermal energy customer to take required amounts of thermal energy
from a cogeneration facility that is a QF could cause the facility to fail
requirements regarding the level of useful thermal energy output. Upon the
occurrence of such an event, the Company would seek to replace the thermal
energy customer or find another use for the thermal energy which meets PURPA's
requirements, but no assurance can be given that this would be possible.

If one of the projects in which the Company has an interest should lose its
status as a QF, the project would no longer be entitled to the exemptions from
PUHCA and the FPA. This could subject the project to rate regulation as a public
utility under the FPA and state law and could result in the Company
inadvertently becoming a public utility holding company by owning more than 10%
of the voting securities of, or controlling, a facility that would no longer be
exempt from PUHCA. This could cause all of the Company's remaining projects to
lose their qualifying status, because QFs may not be controlled or more than 50%
owned by such public utility holding companies. Loss of QF status may also
trigger defaults under covenants to maintain QF status in the projects' power
sales agreements, steam sales agreements and financing agreements and result in
termination, penalties or acceleration of indebtedness under such agreements
such that loss of status may be on a retroactive or a prospective basis.

If a project were to lose its QF status, the Company could attempt to avoid
holding company status (and thereby protect the QF status of its other projects)
on a prospective basis by restructuring the project, by changing its voting
interest in the entity owning the non-qualifying project to nonvoting or limited
partnership interests and selling the voting interest to an individual or
company which could tolerate the lack of exemption from PUHCA, or by otherwise
restructuring ownership of the project so as not to become a holding company.
These actions, however, would require approval of the Securities and Exchange
Commission ("SEC") or a no-action letter from the SEC, and would result in a
loss of control over the non-qualifying project, could result in a reduced
financial interest therein and might result in a modification of the Company's
operation and maintenance agreement relating to such project. A reduced
financial interest could result in a gain or loss on the sale of the interest in
such project, the removal of the affiliate through which the ownership interest
is held from the consolidated income tax group or the consolidated financial
statements of the Company, or a change in the results of operations of the
Company. Loss of QF status on a retroactive basis could lead to, among other
things, fines and penalties being levied against the Company and its
subsidiaries and claims by utilities for refund of payments previously made.

Under the Energy Policy Act of 1992, if a project can be qualified as an
exempt wholesale generator ("EWG"), it will be exempt from PUHCA even if it does
not qualify as a QF. Therefore, another response to the loss or potential loss
of QF status would be to apply to have the project qualified as an EWG. However,
assuming this changed status would be permissible under the terms of the
applicable power sales agreement, rate approval from FERC and approval of the
utility would be required. In addition, the project would be required to cease
selling electricity to any retail customers (such as the thermal energy
customer) and could become subject to state regulation of sales of thermal
energy. See "-- Public Utility Holding Company Regulation."

Public Utility Holding Company Regulation

Under PUHCA, any corporation, partnership or other legal entity which owns
or controls 10% or more of the outstanding voting securities of a "public
utility company" or a company which is a "holding company" for a public utility
company is subject to registration with the SEC and regulation under PUHCA,
unless eligible for an exemption. A holding company of a public utility company
that is subject to registration is required by PUHCA to limit its utility
operations to a single integrated utility system and to divest any other
operations not functionally related to the operation of that utility system.
Approval by the SEC is required for nearly all important financial and business
dealings of the holding company. Under PURPA, most QFs are not public utility
companies under PUHCA.

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The Energy Policy Act of 1992, among other things, amends PUHCA to allow
EWGs, under certain circumstances, to own and operate non-QFs without subjecting
those producers to registration or regulation under PUHCA. The expected effect
of such amendments would be to enhance the development of non-QFs which do not
have to meet the fuel, production and ownership requirements of PURPA. The
Company believes that the amendments could benefit the Company by expanding its
ability to own and operate facilities that do not qualify for QF status, but may
also result in increased competition by allowing utilities to develop such
facilities which are not subject to the constraints of PUHCA.

Federal Natural Gas Transportation Regulation

The Company has an ownership interest in and operates six natural gas-fired
cogeneration projects. The cost of natural gas is ordinarily the largest expense
(other than debt costs) of a project and is critical to the project's economics.
The risks associated with using natural gas can include the need to arrange
transportation of the gas from great distances, including obtaining removal,
export and import authority if the gas is transported from Canada; the
possibility of interruption of the gas supply or transportation (depending on
the quality of the gas reserves purchased or dedicated to the project, the
financial and operating strength of the gas supplier, and whether firm or
non-firm transportation is purchased); and obligations to take a minimum
quantity of gas and pay for it (i.e., take-and-pay obligations).

Pursuant to the Natural Gas Act, FERC has jurisdiction over the
transportation and storage of natural gas in interstate commerce. With respect
to most transactions that do not involve the construction of pipeline
facilities, regulatory authorization can be obtained on a self-implementing
basis. However, pipeline rates for such services are subject to continuing FERC
oversight. Order No. 636, issued by FERC in April 1992, mandates the
restructuring of interstate natural gas pipeline sales and transportation
services and will result in changes in the terms and conditions under which
interstate pipelines will provide transportation services, as well as the rates
pipelines may charge for such services. The restructuring required by the rule
includes (i) the separation (unbundling) of a pipeline's sales and
transportation services, (ii) the implementation of a straight fixed-variable
rate design methodology under which all of a pipeline's fixed costs are
recovered through its reservation charge, (iii) the implementation of a capacity
releasing mechanism under which holders of firm transportation capacity on
pipelines can release that capacity for resale by the pipeline and (iv) the
opportunity for pipelines to recover 100% of their prudently incurred costs
(transition costs) associated with implementing the restructuring mandated by
the rule. Pipelines were required to file tariff sheets implementing Order No.
636 by December 31, 1992. FERC affirmed the major components of Order No. 636 in
Order Nos. 636A and B issued in August and November 1992. The restructuring
required by the rule became effective in late 1993.

STATE REGULATION

State public utility commissions ("PUCs") have broad authority to regulate
both the rates charged by and financial activities of electric utilities, and to
promulgate regulations implementing PURPA. Since a power sales contract will
become a part of a utility's cost structure (and therefore is generally
reflected in its retail rates), power sales contracts with independents are
potentially under the regulatory purview of PUCs, particularly the process by
which the utility has entered into the power sales contracts. If a PUC has
approved of the process by which a utility secures its power supply, a PUC
generally will be inclined to allow a utility to "pass through" the expenses
associated with an independent power contract to the utility's retail customers.
However, a regulatory commission may disallow the full reimbursement to a
utility for the purchase of electricity from QFs. In addition, retail sales of
electricity or thermal energy by an independent power producer may be subject to
PUC regulation, depending on state law.

Independent power producers which are not QFs under PURPA are considered to
be public utilities in many states and are subject to broad regulation by PUCs
ranging from the requirement of certificates of public convenience and necessity
to regulation of organizational, accounting, financial and other corporate
matters. In addition, states may assert jurisdiction over the siting and
construction of facilities not qualifying as QFs (as well as QFs), and over the
issuance of securities and the sale or other transfer of assets by these
facilities (but not QFs).

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CPUC and the California Assembly Joint Legislative Committee on Lowering
the Cost of Electric Services commenced proceedings and hearings related to the
restructure of the California electric services industry in 1994. The
proceedings and hearings were initiated as a result of the CPUC Order
Instituting Rulemaking and Order Instituting Investigation on the Commission
Proposed Policies Governing Restructuring California's Electric Services
Industry and Reforming Regulation, issued by the CPUC on April 20, 1994. The
FERC, as authorized under the Energy Policy Act of 1992, is also holding
hearings on policy issues related to a more competitive electric services
industry.

On December 20, 1995, the CPUC issued an electric industry restructuring
decision which envisions commencement of deregulation and implementation of
customer choice beginning January 1, 1998, with all consumers participating by
2003. Because restructuring the California electric industry requires
participation and oversight by the FERC, the CPUC seeks to build a consensus
involving the California Legislature, the Governor, public and municipal
utilities, and customers. This consensus would be reflected in filings for
approval by the FERC and provides a cooperative spirit whereby both agencies
would move forward to implement the new market structure no later than January
1, 1998.

The decision provides for phased-in customer choice, development of a
non-discriminatory market structure, recovery of utilities stranded costs,
sanctity of existing contracts and continuation of existing public policy
programs including the promotion of fuel diversity through a renewable energy
purchase requirement.

On February 5, 1996, the CPUC issued a proposed procedural plan that
facilitates the transition of the electric generation market to competition by
January 1, 1998. This electric restructuring "roadmap" focuses on the multiple
and interrelated tasks that must be accomplished and sets forth the process to
achieve the necessary procedural milestones that must be completed in order to
meet the implementation goal.

In addition to the significant opportunity provided for power producers
such as Calpine resulting from the implementation of direct access, the decision
recognizes the sanctity of existing QF contracts. The decision recognizes that
horizontal market power concerns will likely require investor owned utilities to
divest themselves of a substantial portion of their generating assets and
requires the utilities to file with the Commission a plan for voluntary
divestiture of up to 50% of their fossil generating assets. The decision to
commit to the establishment of a restructuring policy maintains California's
resource diversity provided by existing renewal resources (including geothermal)
and encourages development of new renewable resources. The continued resource
diversity would be provided by a renewable portfolio standard which establishes
that a renewable purchase requirement be placed on providers of electricity and
creates a system of tradeable credits for meeting the purchase requirement.

State PUCs also have jurisdiction over the transportation of natural gas by
local distribution companies ("LDCs"). Each state's regulatory laws are somewhat
different; however, all generally require the LDC to obtain approval from the
PUC for the construction of facilities and transportation services if the LDC's
generally applicable tariffs do not cover the proposed transaction. LDC rates
are usually subject to continuing PUC oversight.

REGULATION OF CANADIAN GAS

The Canadian natural gas industry is subject to extensive regulation by
governmental authorities. At the federal level, a party exporting gas from
Canada must obtain an export license from the Canadian National Energy Board
("NEB"). The NEB also regulates Canadian pipeline transportation rates and the
construction of pipeline facilities. Gas producers also must obtain a removal
permit or license from provincial authorities before natural gas may be removed
from the province, and provincial authorities may regulate intraprovincial
pipeline and gathering systems. In addition, a party importing natural gas into
the United States first must obtain an import authorization from the U.S.
Department of Energy.

ENVIRONMENTAL REGULATIONS

The exploration for and development of geothermal resources and the
construction and operation of power projects are subject to extensive federal,
state and local laws and regulations adopted for the protection of the
environment and to regulate land use. The laws and regulations applicable to the
Company primarily involve the discharge of emissions into the water and air and
the use of water, but can also include wetlands preservation, endangered
species, waste disposal and noise regulations. These laws and regulations in
many

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cases require a lengthy and complex process of obtaining licenses, permits and
approvals from federal, state and local agencies.

Noncompliance with environmental laws and regulations can result in the
imposition of civil or criminal fines or penalties. In some instances,
environmental laws also may impose clean-up or other remedial obligations in the
event of a release of pollutants or contaminants into the environment. The
following federal laws are among the more significant environmental laws as they
apply to the Company. In most cases, analogous state laws also exist that may
impose similar, and in some cases more stringent, requirements on the Company as
those discussed below.

Clean Air Act

The Federal Clean Air Act of 1970 (the "Clean Air Act") provides for the
regulation, largely through state implementation of federal requirements, of
emissions of air pollutants from certain facilities and operations. As
originally enacted, the Clean Air Act sets guidelines for emissions standards
for major pollutants (i.e., sulfur dioxide and nitrogen oxide) from newly built
sources. In late 1990, Congress passed the Clean Air Act Amendments (the "1990
Amendments"). The 1990 Amendments attempt to reduce emissions from existing
sources, particularly previously exempted older power plants. The Company
believes that all of the Company's operating plants are in compliance with
federal performance standards mandated for such plants under the Clean Air Act
and the 1990 Amendments. With respect to its Aidlin geothermal plant and one of
its steam field pipelines, the Company's operations have, in certain instances,
necessitated variances under applicable California air pollution control laws.
However, the Company believes that it is in material compliance with such laws
with respect to such facilities.

Clean Water Act

The Federal Clean Water Act (the "Clean Water Act") establishes rules
regulating the discharge of pollutants into waters of the United States. The
Company is required to obtain a wastewater and stormwater discharge permit for
wastewater and runoff, respectively, from certain of the Company's facilities.
The Company believes that, with respect to its geothermal operations, it is
exempt from newly-promulgated federal stormwater requirements. The Company
believes that it is in material compliance with applicable discharge
requirements under the Clean Water Act.

Resource Conservation and Recovery Act

The Resource Conservation and Recovery Act ("RCRA") regulates the
generation, treatment, storage, handling, transportation and disposal of solid
and hazardous waste. The Company believes that it is exempt from solid waste
requirements under RCRA. However, particularly with respect to its solid waste
disposal practices at the power generation facilities and steam fields located
at The Geysers, the Company is subject to certain solid waste requirements under
applicable California laws. The Company believes that its operations are in
material compliance with such laws.

Comprehensive Environmental Response, Compensation, and Liability Act

The Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA" or "Superfund"), requires cleanup of sites from which
there has been a release or threatened release of hazardous substances and
authorizes the United States Environmental Protection Agency ("EPA") to take any
necessary response action at Superfund sites, including ordering potentially
responsible parties ("PRPs") liable for the release to take or pay for such
actions. PRPs are broadly defined under CERCLA to include past and present
owners and operators of, as well as generators of wastes sent to, a site. As of
the present time, the Company is not subject to liability for any Superfund
matters. However, the Company generates certain wastes, including hazardous
wastes, and sends certain of its wastes to third-party waste disposal sites. As
a result, there can be no assurance that the Company will not incur liability
under CERCLA in the future.

COMPETITION

The Company competes with independent power producers, including affiliates
of utilities, in obtaining long-term agreements to sell electric power to
utilities. In addition, utilities may elect to expand or create generating
capacity through their own direct investments in new plants. Over the past
decade, obtaining a

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power sales agreement with a utility has become an increasingly more difficult,
expensive and competitive process. In the past few years, more contracts have
been awarded through some form of competitive bidding. Increased competition
also has lowered profit margins of successful projects.

The demand for power in the United States traditionally has been met by
utilities constructing large-scale electric generating plants under rate-based
regulation. The enactment of PURPA in 1978 spawned the growth of the independent
power industry, which expanded rapidly in the 1980s. The initial independent
power producers were an entrepreneurial group of cogenerators and small power
producers who recognized the potential business opportunities offered by PURPA.
This initial group of independents was later joined by larger, better
capitalized companies, such as subsidiaries of fuel supply companies,
engineering companies, equipment manufacturers and affiliates of other
industrial companies. In addition, a number of regulated utilities have created
subsidiaries (known as utility affiliates) that compete with independent power
producers. Some independent power producers specialize in market "niches," such
as a specific technology or fuel (e.g., gas-fired cogeneration, geothermal,
hydroelectric, refuse-to-energy, wind, solar, coal and wood), or a specific
region of the country where they believe they have a market advantage. The
Company presently conducts its operations primarily in the United States and
concentrates on gas-fired and geothermal cogeneration plants.

The Company is the second largest producer of geothermal energy in the
United States. Although the Company is an established leader in the geothermal
power industry and is rapidly growing, most independent power producers and
utility affiliates have significantly greater capital, financial and operational
resources than the Company.

Recent amendments to PUHCA made by the Energy Policy Act of 1992 are likely
to increase the number of competitors in the independent power industry by
reducing certain restrictions currently applicable to certain projects that are
not QFs under PURPA. However, the recent amendments also should make it simpler
for the Company to develop new projects itself, for example, by enabling the
Company to develop large, gas-fired generation projects without the necessity of
locating its projects in the vicinity of a steam host or otherwise finding a
steam host to accept the useful thermal output required of a cogeneration
facility under PURPA.

EMPLOYEES

As of May 31, 1996, the Company employed 232 people. None of the Company's
employees are covered by collective bargaining agreements, and the Company has
never experienced a work stoppage, strike or labor dispute. The Company
considers relations with its employees to be good.

PROPERTIES

The Company's principal executive office is located in San Jose, California
under a lease that expires in June 2001. The Company also maintains a regional
office in Santa Rosa, California under a lease that expires in 1999.

The Company, through its ownership of CGC and Calpine Thermal, has
leasehold interests in 111 leases comprising 27,287 acres of federal, state and
private geothermal resource lands in The Geysers area in northern California.
These leases comprise its West Ford Flat Facility, Bear Canyon Facility, PG&E
Unit 13 and Unit 16 Steam Fields, SMUDGEO #1 Steam Fields and Thermal Power
Company's 25% undivided interest in the Thermal Power Company Steam Fields which
are operated by Union Oil. The Company has subleasehold interests in three
leases comprising 6,825 acres of federal geothermal resource lands in the Coso
area in central California. In the Glass Mountain and Medicine Lake areas in
northern California, the Company holds leasehold interests in 23 leases
comprising 29,956 acres of federal geothermal resource lands.

In general, under the leases, the Company has the exclusive right to drill
for, produce and sell geothermal resources from these properties and the right
to use the surface for all related purposes. Each lease requires the payment of
annual rent until commercial quantities of geothermal resources are established.
After such time, the leases require the payment of minimum advance royalties or
other payments until production commences, at which time production royalties
are payable. Such royalties and other payments are payable to landowners, state
and federal agencies and others, and vary widely as to the particular lease. The
leases are generally for initial terms varying from 10 to 20 years or for so
long as geothermal resources are produced and sold. Certain of the leases
contain drilling or other exploratory work requirements. In certain cases, if a
requirement is not fulfilled, the lease may be terminated and in other cases
additional payments may be required. The Company believes that its leases are
valid and that it has complied with all the requirements and conditions material
to

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their continued effectiveness. A number of the Company's leases for undeveloped
properties may expire in any given year. Before leases expire, the Company
performs geological evaluations in an effort to determine the resource potential
of the underlying properties. No assurance can be given that the Company will
decide to renew any expiring leases.

The Company, through its ownership of the Greenleaf 1 Facility, owns 77
acres in Sutter County, California.

See "-- Description of Facilities" for a description of the other material
properties leased or owned by the projects in which the Company has ownership
interests. The Company believes that its properties are adequate for its current
operations.

LEGAL PROCEEDINGS

The Company, together with over 100 other parties, was named as a defendant
in the second amended complaint in an action brought in August 1993 by the
bankruptcy trustee for Bonneville Pacific Corporation ("Bonneville"), captioned
Roger G. Segal, as the Chapter 11 Trustee for Bonneville Pacific Corporation v.
Portland General Corporation, et al., in the United States District Court for
the District of Utah. This complaint alleges that, in conjunction with top
executives of Bonneville and with the alleged assistance of the other 100
defendants, the Company engaged in a broad conspiracy and fraud. The complaint
has been amended a number of times. The Company has answered each version of the
complaint by denying all claims. In August 1994, the Company successfully moved
for an order severing the trustee's claims against the Company from the claims
against the other defendants. Although the case involves over 25 separate
financial transactions entered into by Bonneville, the severed case concerns the
Company in respect of only one of these transactions. In 1988, the Company
invested $2.0 million in a partnership formed with Bonneville to develop four
hydroelectric projects in the State of Hawaii. The projects were not
successfully developed by the partnership and, subsequent to Bonneville's
Chapter 11 filing, the Company filed a claim as a creditor against Bonneville's
bankruptcy estate. The trustee alleges that the investment was actually a loan
and was designed to inflate Bonneville's earnings. The trustee further alleges
that Calpine is one of many defendants in this case responsible for Bonneville's
insolvency and the amount of damages attributable to the Company based on the
$2.0 million partnership investment is alleged to be $577.2 million. The trustee
is seeking to hold each of the other defendants liable for a portion, all or, in
certain cases, more than this amount. The Company believes the claims against it
are without merit and will continue to defend the action vigorously. The Company
further believes that the resolution of this matter will not have a material
adverse effect on its financial position or results of operations.

ENCO, the wholly owned subsidiary of Sumas, terminated protracted contract
negotiations with two Canadian natural gas suppliers in January 1995. One of the
suppliers notified ENCO it considered a draft contract to be effective although
it had not been executed by ENCO. The supplier indicated it may pursue legal
action if ENCO would not execute the contract. As of March 31, 1996, no legal
action has been served on ENCO. Management believes if legal action is
commenced, ENCO has significant defenses and believes such action will not
result in any material adverse impact to the Company's financial condition or
results of operations.

In connection with the Company's unsuccessful attempt to acquire O'Brien
Environmental Energy, Inc. ("O'Brien") in 1995 through the U.S. Bankruptcy Court
proceedings, the Company incurred approximately $3.6 million of third-party
expenses, all of which have been capitalized by the Company. Pursuant to the
terms of a contract with O'Brien, the Company is seeking the reimbursement of
such expenses and a $2.0 million break-up fee, each of which is subject to the
approval of the Bankruptcy Court. On June 6, 1996, the Bankruptcy Court ruled
that the Company had the right to seek reimbursement of its fees and expenses
and scheduled an evidentiary hearing to begin on August 28, 1996 to determine
the amount to be awarded. Although the Company believes it will be awarded all
or a substantial part of the fees and expenses which it is seeking, there can be
no assurance as to the ultimate resolution of this claim.

The Company is involved in various other claims and legal actions arising
out of the normal course of business. Management does not expect that the
outcome of these cases will have a material adverse effect on the Company's
financial position or results of operations.

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MANAGEMENT

EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES

The following table sets forth certain information with respect to each
person who is a director or executive officer of the Company.

<TABLE>
<CAPTION>
NAME AGE POSITION
------------------------------------------ ---- ---------------------------------------------
<S> <C> <C>
Pierre Krafft............................. 66 Chairman of the Board
Hans-Peter Aebi........................... 48 Director
Rudolf Boesch............................. 59 Director
Peter Bosshard............................ 64 Director
Peter Cartwright.......................... 66 President, Chief Executive Officer, Director
Rodney M. Boucher......................... 52 Senior Vice President
Ann B. Curtis............................. 45 Senior Vice President
Lynn A. Kerby............................. 57 Senior Vice President
Kenneth J. Kerr........................... 52 Senior Vice President
Peter W. Camp............................. 56 Vice President
Robert D. Kelly........................... 38 Vice President
Larry R. Krumland......................... 56 Vice President
Alicia N. Noyola.......................... 46 Vice President
John P. Rocchio........................... 58 Vice President
Ron A. Walter............................. 46 Vice President
</TABLE>

Set forth below is certain information with respect to each director and
executive officer of the Company.

Pierre Krafft has been the Company's Chairman of the Board since March
1991. Mr. Krafft served as Executive Vice President of Electrowatt from 1971
until his retirement in April 1995. He also serves as a director of several
electric utility companies in Switzerland, Germany and France and as Chairman of
the Swiss National Committee of the World Energy Council. Mr. Krafft obtained a
Master of Science Degree in Electrical Engineering from the Georgia Institute of
Technology in 1956 and an undergraduate degree in Electrical Engineering from
the Federal Institute of Technology in 1953.

Hans-Peter Aebi has been a Director of the Company since June 1994. Mr.
Aebi has served as the President of Elektrizitats-Gesellschaft Laufenburg AG,
Executive Vice President of the Electric Power Operations Division and a member
of Electrowatt's executive management since October 1994. He was also named
Executive Vice President for Landis & Gyr AG in March 1996. He served as the
Senior Vice President of the Energy Division of Electrowatt from 1993 to 1994.
Mr. Aebi's prior experience includes 14 years with an Electrowatt affiliate,
CKW, in various capacities including Executive Vice President from 1991 to 1992,
and as the First Vice President from 1988 to 1990. Mr. Aebi obtained a Master of
Science Degree in Engineering from the Federal Institute of Technology in 1972.

Rudolf Boesch has been a Director of the Company since its inception in
1984. Dr. Boesch serves as a member of the Executive Committee of Electrowatt,
and as Executive Vice President of Electrowatt's Services Division. His prior
experience with Electrowatt includes over ten years in the areas of marketing
and sales and technical development. Dr. Boesch obtained a Ph.D. in Physics from
the Federal Institute of Technology in 1965.

Peter Bosshard has been a Director of the Company since June 1994. Mr.
Bosshard served as a member of Credit Suisse's senior management, and served as
President of Credit Suisse Capital Corporation from 1989 to 1994, at which time
he retired. Mr. Bosshard has also served as a board member of several Swiss
companies and the following U.S. companies: BEA Associates, U.S. Advisory Board
of Zurich Insurance Company, Zurich Holding Company of America, American
Guarantee and Liability Insurance Co. and Chanel, Inc. Mr. Bosshard's prior
experience includes 25 years with Credit Suisse in various positions. Mr.
Bosshard received his banking education through the Swiss Volksbank and Swiss
Bank Corporation.

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<PAGE> 86

Peter Cartwright founded the Company in 1984 and has since served as a
Director and as the Company's President and Chief Executive Officer. From 1979
to 1984, Mr. Cartwright was Vice President and General Manager of Gibbs & Hill,
Inc.'s Western Regional Office, an office which he established. Gibbs & Hill is
an architect-engineering firm which specializes in power engineering projects.
From 1960 to 1979, Mr. Cartwright worked for General Electric's Nuclear Energy
Division. His responsibilities included plant construction, project management
and new business development. He served on the Board of Directors of nuclear
fuel manufacturing companies in Germany, Italy and Japan. Mr. Cartwright was
responsible for General Electric's technology development and licensing programs
in Europe and Japan. Mr. Cartwright obtained a Master of Science Degree in Civil
Engineering from Columbia University in 1953 and a Bachelor of Science Degree in
Geological Engineering from Princeton University in 1952. Mr. Cartwright is a
Professional Engineer licensed in the states of New York and California.

Rodney M. Boucher joined the Company in June 1995 as Senior Vice President,
and as President and Chief Executive Officer of the Company's subsidiary,
Calpine Power Services Company. He is responsible for the purchase, sale and
marketing of electric power, as well as the restructuring of contract,
transmission and generation rights. Prior to joining the Company, Mr. Boucher
served as Chief Operating Officer of Citizens Power & Light Company from 1992 to
1995 and as Senior Vice President of Citizens Lehman Power L.P., in Boston,
Massachusetts from 1994 to 1995. Prior to joining Citizens he served as
President for Electrical Interconnections-International from 1991 to 1992. Mr.
Boucher also served as Vice President and Chief Information Officer with
PacifiCorp from 1984 to 1991, and held various other positions with PacifiCorp
since 1975. Mr. Boucher holds a Master of Science Degree in Power Systems from
Rensselaer Polytechnic Institute and a Bachelor of Science Degree in Electrical
Engineering from Oregon State University.

Ann B. Curtis has served as the Company's Senior Vice President since
September 1992 and has been employed by the Company since its inception in 1984.
She is responsible for the Company's financial and administrative functions,
including the functions of general counsel, corporate and project finance,
accounting, human resources, public relations and investor relations. Ms. Curtis
also serves as Corporate Secretary for the Company, and serves as an officer of
each of the Company's subsidiaries. Ms. Curtis also represents the Company on
partnership management committees. From the Company's inception in 1984 through
1992, she served as the Company's Vice President for Management and Financial
Services. Prior to joining Calpine, Ms. Curtis was Manager of Administration for
Gibbs & Hill, Inc.

Lynn A. Kerby joined the Company in January 1991 and served as Vice
President of Operations through January 1993, at which time he became a Senior
Vice President for the Company. Prior to joining the Company, Mr. Kerby served
as Senior Vice President-Operations of Guy F. Atkinson Company, an engineering
and construction company, from 1989 to 1990, and served in various other
positions within Guy F. Atkinson since 1961. Mr. Kerby served on Calpine's Board
of Directors from 1984 to 1988 as a Guy F. Atkinson representative. He obtained
a Bachelor of Science Degree in Civil Engineering and Business from the
University of Idaho in 1961. Mr. Kerby holds a Class A Contractors License in
the states of California, Arizona and Hawaii.

Kenneth J. Kerr joined the Company in March 1996 as Senior Vice
President-International. Prior to joining the Company, he served as Senior Vice
President-Commercial Development for Magma Power Company from 1993 to 1995. From
1989 to 1993 he served as Business Vice President-Plastics, Pacific Area with
The Dow Chemical Company. From 1966 to 1989, he served in various marketing and
management positions also with The Dow Chemical Company. Mr. Kerr obtained a
Bachelor of Science Degree in Chemical Engineering from the University of
Delaware in 1966.

Peter W. Camp joined the Company in November 1993 and served as Director of
Project Development through January 1995, at which time he became a Vice
President of Project Development. From 1992 to 1993 he served as a full-time
consultant with the Company. From 1988 to 1992, he served as President for
Altran Corporation, a nuclear waste technology company. From 1975 to 1987, Mr.
Camp worked for General Electric Company as General Manager, Nuclear Fuel
Marketing and Projects Department, and as Manager, Nuclear Energy Strategic
Planning. He obtained a Master of Business Administration Degree from Stanford

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University in 1970 and a Bachelor of Science Degree in Mechanical Engineering
from Yale University in 1962.

Robert D. Kelly has served as the Company's Vice President, Finance since
1994. Mr. Kelly's responsibilities include all project and corporate finance
activities. From 1991 to 1992, Mr. Kelly served as Project Finance Manager, and
from 1992 to 1994, he served as Director-Project Finance for the Company. Prior
to joining the Company, he was the Marketing Manager of Westinghouse Credit
Corporation from 1990 to 1991. From 1989 to 1990, Mr. Kelly was Vice President
of Lloyds Bank PLC. From 1982 to 1989, Mr. Kelly was employed in various
positions with The Bank of Nova Scotia. He obtained a Master of Business
Administration Degree from Dalhousie University, Canada in 1980 and a Bachelor
of Commerce Degree from Memorial University, Canada, in 1979.

Larry R. Krumland has served as the Company's Vice President of Asset
Management since January 1993. From 1990 to 1993, Mr. Krumland served as
Director-Asset Management. From 1984 to 1990, Mr. Krumland served as
Manager-Geothermal Development. Prior to joining the Company, he served as
Director of Sales and Manager of Geothermal Projects for Gibbs & Hill, Inc. Mr.
Krumland obtained a Master of Business Administration Degree in Business
Economics and Finance from the University of California, Los Angeles in 1972; a
Master of Science Degree in Engineering, Energy Systems, from the University of
California, Los Angeles in 1967; and a Bachelor of Science Degree in Mechanical
Engineering from the University of California at Berkeley in 1964.

Alicia N. Noyola joined the Company in March 1991 and served as a full-time
consultant through March 1992, at which time she became employed by the Company
as Special Counsel. Ms. Noyola became a Vice President of Project Development in
January 1993. From 1987 to 1991, Ms. Noyola was a partner in the San Francisco,
California-based law firm Thelen, Marrin, Johnson and Bridges, where she
concentrated on commercial and corporate finance. Ms. Noyola obtained a Juris
Doctor Degree in 1973 from Hastings College of the Law, University of California
and obtained a Bachelor of Arts Degree in Architecture in 1970 from the
University of California, Berkeley.

John P. Rocchio joined the Company at inception in 1984 as Vice President
of Project Development. Prior to joining the Company, he served as Manager of
Business Development for Gibbs & Hill, Inc. from 1979 to 1984. Prior to 1979,
Mr. Rocchio served for 17 years with General Electric in various positions,
including Manager International Sales for the Nuclear Energy Group from 1970 to
1979 and various engineering and marketing positions from 1962 to 1979. He
obtained a Bachelor of Science Degree in Marine Engineering from the U.S.
Merchant Marine Academy in 1959.

Ron A. Walter has served as the Company's Vice President of Project
Development since July 1990. From 1984 to 1990, Mr. Walter served as the
Company's Manager-Geothermal Projects. Prior to joining the Company, he served
as Director of Sales-Geothermal for the San Jose-based architect-engineering
firm, Gibbs & Hill, Inc. from 1983 to 1984 and Senior Engineer from 1982 to
1983. From 1981 to 1982 he served as Project Manager Geothermal Projects with
Rogers Engineering Co. and from 1972 to 1981 he served in engineering and
management positions with Batelle Northwest Laboratories. Mr. Walter obtained a
Master of Science Degree in Mechanical Engineering from Oregon State University
in 1976 and a Bachelor of Science Degree in Mechanical Engineering from the
University of Nebraska in 1971.

All Directors hold office until the next annual meeting of shareholders or
until their successors have been elected and qualified. Executive officers are
appointed by the Board of Directors and serve at the discretion of the Board.
There are no family relationships among any of the Directors or executive
officers of the Company.

OTHER KEY EMPLOYEES

The following is a list of certain other key employees of the Company.

Richard D. Barraza, 38, has been the Company's Director of Financial
Planning and Analysis since 1994. From 1992 to 1994, he served as the Company's
Director of Corporate Accounting, and from 1989 to 1992, Mr. Barraza served as
General Accounting Manager. Mr. Barraza joined the Company in 1986 as an
Accountant. Prior to joining the Company, he served as an Accounting Supervisor
for EG&G Reticon, an

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electronics manufacturer, from 1984 to 1986. Mr. Barraza obtained a Bachelor of
Science Degree in Accounting from San Jose State University in 1981.

William T. Box, Jr., 51, has been the Company's Geothermal Resource Manager
since July 1990. Prior to this position, he served as Manager-Geology and
Reservoir Engineering for FMRP and its predecessor companies since 1985. Mr. Box
has 20 years of experience working on The Geysers geothermal projects, including
the exploration and development of the Company's projects in The Geysers. He
obtained a Master of Science Degree in Geology from the University of Colorado
in 1969 and a Bachelor of Science Degree in Geology from the University of
Oregon in 1967.

Vince Cushing, 47, has been the Company's Director of Power Services and
Senior Vice President of the Company's subsidiary, Calpine Power Services
Company, since January 1996. From October 1995 to December 1995 he served as a
Power Marketing Consultant for the Company. Prior to joining the Company as a
consultant, Mr. Cushing served as Manager-Interconnections from 1984 to 1995, as
Manager-Corporate Planning from 1978 to 1983 and as Senior Project Engineer from
1970 to 1978 with Potomac Electric Power Company. Mr. Cushing obtained a Master
of Engineering Administration Degree from George Washington University in 1978
and a Bachelor of Science Degree in Electrical Engineering from Notre Dame in
1970.

Gloria S. Gee, 46, has been the Company's Controller since October 1994.
Prior to joining the Company, Ms. Gee served as Chief Financial Officer and
co-founder of G&E Engineering Systems, Inc., an engineering consulting firm,
from 1993 to 1994. Ms. Gee's prior experience includes over 20 years with
Pacific Gas & Electric Company, where she most recently served as Controller
from 1989 to 1993. Ms. Gee obtained a Master of Business Administration Degree
from the University of California at Berkeley in 1985 and a Bachelor of Science
Degree in Accounting also from the University of California at Berkeley in 1972.

Diana J. Naylor, 38, has been the Company's Director of Fuels Management
since November 1994. Ms. Naylor served as Account Director for Transwestern
Pipeline Company (a subsidiary of Enron Corp.) from 1991 to 1994. Previously,
she served as Manager of Gas Sales and Petroleum Engineer from 1982 to 1992, and
as a Senior Project Engineer for Exxon Company USA from 1980 to 1981. Ms. Naylor
obtained a Bachelor of Science Degree in Chemical Engineering from the
University of Texas at Austin in 1979.

Maurice A. Richard, 55, has been the Company's Geothermal Program Manager
since April 1992. Prior to joining the Company, he served as Vice President-Puna
Geothermal Venture and Hawaii Regional Development Manager for Ormat Energy
Systems from 1987 to 1992. Mr. Richard's prior experience includes an additional
29 years in the mineral, natural resource and power industries. Mr. Richard
obtained a Bachelor of Science Degree in Civil Engineering from Queen's
University, Canada, and a Bachelor of Arts Degree in Business Administration
from Sarnia College, Canada, in 1960.

Joseph E. Ronan, Jr., 50, has been the Company's General Counsel since June
1992. Prior to joining the Company, Mr. Ronan served as General Counsel to
Pollock Financial Corporation, a real estate investment company, from 1986 to
1992. Mr. Ronan has 20 years of corporate and government legal experience in the
energy, natural resources and regulatory fields. Mr. Ronan obtained a Juris
Doctor Degree from the University of Denver College of Law in 1975 and a
Bachelor of Science Degree from the University of Wisconsin, Madison in 1969.

Jacob M. Rudisill, 41, has been the Company's Manager of Geysers Operations
since July 1990. Prior to 1990, he served as Operations Manager for FMRP and its
predecessor companies since 1981. Mr. Rudisill worked for Thermal Power Company
from 1976 to 1981 in various engineering and management positions. Mr. Rudisill
obtained a Master of Science Degree in Mechanical Engineering from Stanford
University in 1976 and a Bachelor of Science Degree, also in Mechanical
Engineering, from North Carolina State University in 1975. Mr. Rudisill is a
Professional Engineer licensed in the state of California in the Mechanical
Engineering Branch.

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EXECUTIVE COMPENSATION

COMPENSATION PROVIDED TO CERTAIN EXECUTIVE OFFICERS

The following table provides certain summary information concerning the
compensation earned, paid or awarded for services rendered to the Company in all
capacities during each of the three years ended December 31, 1995 to the
Company's Chief Executive Officer and each of the five other most highly
compensated executive officers of the Company serving in that capacity as of
December 31, 1995.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------
ANNUAL COMPENSATION SECURITIES
----------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)(1)
- ------------------------------------ ---- --------- -------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
Peter 1995 341,000 255,750 34,400 21,420
Cartwright.......................... 1994 300,000 292,500 30,000 11,934
President and Chief Executive 1993 220,055 176,000 -- 7,722
Officer(2)
Lynn A. 1995 195,000 72,000 10,320 4,815
Kerby............................... 1994 180,000 72,000 7,500 4,275
Senior Vice President 1993 173,250 90,000 8,000 4,228
Ann B. 1995 160,000 60,000 10,320 877
Curtis.............................. 1994 130,000 75,000 7,500 694
Senior Vice President 1993 122,500 70,000 -- 648
Alicia N. 1995 140,000 45,000 2,580 1,288
Noyola.............................. 1994 133,875 40,162 -- 1,134
Vice President 1993 124,417 40,000 6,000 660
Ron A. 1995 135,000 45,000 2,580 1,235
Walter.............................. 1994 120,000 40,000 -- 1,027
Vice President 1993 112,500 30,000 -- 587
Robert D. 1995 126,684 42,000 4,300 436
Kelly............................... 1994 115,208 60,000 6,000 389
Vice President(3) 1993 103,347 50,000 4,500 343
</TABLE>

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

(1) Represents the taxable value of an employer-sponsored life insurance policy.
The amount is calculated based on the age of the employee and the life
insurance coverage in excess of $50,000.

(2) For a description of Mr. Cartwright's employment agreement with the Company,
see "Employment Agreement" below.

(3) Mr. Kelly was promoted to Vice President in March 1994.

EMPLOYMENT AGREEMENT

The Company has an existing employment agreement with Mr. Peter Cartwright,
the President and Chief Executive Officer of the Company, which expires on
December 31, 1998 unless earlier terminated or subsequently extended. Pursuant
to the agreement, Mr. Cartwright is to be paid a base salary, subject to
periodic adjustment by the Board of Directors. Mr. Cartwright is eligible for
annual bonuses and all benefit and equity participation plans, including the
Company's Stock Option Program. The employment agreement also provides for other
employee benefits such as executive life insurance and health care, in addition
to certain disability and death benefits. Severance benefits are also payable
upon an involuntary termination, or a termination following a change of control
in the Company. Severance benefits would not be payable in the event that
termination was for cause.

The Company does not have employment agreements with any other executive
officer.

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<PAGE> 90

DIRECTOR COMPENSATION

Directors do not receive any compensation or other services as members of
the Board of Directors. The Company may determine in the future to compensate
its outside Directors for their services as members of the Board of Directors.

STOCK OPTION PROGRAM

The following table sets forth certain information concerning grants of
stock options during the fiscal year ended December 31, 1995 to each of the
executive officers named in the Summary Compensation Table above. The table also
sets forth hypothetical gains or "option spreads" for the options at the end of
their respective ten-year terms. These gains are based on the assumed rates of
annual compound stock price appreciation of 5% and 10% from the date the option
was granted over the full option term.

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
INDIVIDUAL GRANTS(1) VALUE AT ASSUMED
---------------------------------------------------------- ANNUAL RATES OF
PERCENTAGE OF STOCK
TOTAL OPTIONS PRICE APPRECIATION
GRANTED TO FOR OPTION
OPTIONS EMPLOYEES TERM($)(3)
GRANTED IN FISCAL EXERCISE EXPIRATION ------------------
NAME (NO. OF SHARES) YEAR(%)(2) PRICE ($/SH) DATE 5% 10%
- -------------------------- --------------- ------------- ----------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Peter Cartwright.......... 34,400 40 25.48 01/01/2005 551,234 1,396,934
Lynn A. Kerby............. 10,320 12 25.48 01/01/2005 165,370 419,180
Ann B. Curtis............. 10,320 12 25.48 01/01/2005 165,370 419,180
Alicia N. Noyola.......... 2,580 3 25.48 01/01/2005 41,343 104,770
Ron A. Walter............. 2,580 3 25.48 01/01/2005 41,343 104,770
Robert D. Kelly........... 4,300 5 25.48 01/01/2005 68,904 174,617
</TABLE>

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

(1) The Company's Stock Option Program ("Stock Option Program") was adopted by
the Board of Directors of the Company and approved by the Company's sole
shareholder in December 1992, and was amended in November 1993. An aggregate
of 500,000 shares of Class A Common Stock has been reserved for issuance
under the Stock Option Program. The Stock Option Program provides for the
granting of nonstatutory stock options. Stock options may be granted to
full-time senior staff members; provided, however, that a maximum of 35
employees may participate in the Stock Option Program. The Stock Option
Program is currently administered by the Board of Directors, which
determines the terms and conditions of the options granted under the Stock
Option Program, including the exercise price, number of shares subject to
the option and the exercisability thereof. All options are nontransferable.
The maximum term of an option is 10 years, but the option generally expires
earlier if the optionee's service terminates. The exercise price of the
options will be determined by the Board of Directors based upon a valuation
of the Company's Class A Common Stock, from time to time, by an independent
appraisal firm. In December 1994, the Company retained an independent
corporate valuation firm to provide it with an independent valuation of the
Company. Based on this valuation report, the Board of Directors concluded
that the fair market value of the Company's Class A Common Stock was $25.48
per share as of December 31, 1994. The Stock Option Program grants the Board
of Directors the discretion to determine when options granted thereunder
shall become exercisable and the vesting period of such options. Options
granted under the Stock Option Program will generally become exercisable in
four equal annual installments. The Stock Option Program provides that, in
the event of a merger of the Company with or into another corporation or a
sale of substantially all of the Company's assets, vesting of any
outstanding unexercised unvested options shall accelerate and become
immediately exercisable unless such Stock Option Program is assumed by the
successor corporation. As of December 31, 1995, outstanding unexercised
options to purchase 357,050 shares of Class A Common Stock with a weighted
average exercise price of $12.14 were held by 17 persons; no options had
been exercised; and 142,950 shares remained available for future grants
under the Stock Option Program.

(2) The Company granted options to purchase 86,050 shares of Class A Common
Stock during the year ended December 31, 1995.

(3) The 5% and 10% assumed annual rates of compound stock price appreciation are
mandated by the rules of the Securities and Exchange Commission and do not
represent the Company's estimate or a projection by the Company of future
stock prices.

No executive officer named in the Summary Compensation Table above
exercised stock options during the year ended December 31, 1995. The following
table sets forth certain information concerning the number of shares subject to
exercisable and unexercisable stock options held by the executive officers named
in the Summary Compensation Table above as of December 31, 1995. Also reported
are values for "in-the-money"

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<PAGE> 91

options that represent the positive spread between the respective exercise
prices of outstanding stock options and the fair market value of the Company's
Class A Common Stock as of December 31, 1995 ($44.52 per share), as determined
by the Company's Board of Directors based upon an independent valuation.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED OPTIONS VALUE OF UNEXERCISED IN-THE-
AT DECEMBER 31, 1995 (NO. OF MONEY OPTIONS AT
OPTIONS) DECEMBER 31, 1995
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Peter Cartwright........................ 115,000 49,400 $ 4,503,700 $ 966,676
Lynn A. Kerby........................... 9,750 16,070 287,325 344,218
Ann B. Curtis........................... 27,750 14,070 1,084,005 274,418
Alicia N. Noyola........................ 4,500 4,080 157,050 101,473
Ron A. Walter........................... 22,000 2,580 922,240 49,123
Robert D. Kelly......................... 6,375 8,425 180,128 183,475
</TABLE>

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Company does not have a compensation committee. For 1995, the members
of the Board of Directors, other than Mr. Cartwright, acted as the compensation
committee for the purposes of establishing the compensation for Mr. Cartwright,
the Company's President and Chief Executive Officer. All decisions regarding the
compensation of the Company's other executive officers were made by Mr.
Cartwright.

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<PAGE> 92

CERTAIN TRANSACTIONS

CS Holding, a Swiss corporation, holds approximately 44.9% of the
outstanding shares of Electrowatt, which indirectly holds all of the outstanding
capital stock of the Company. CS Holding also holds (i) approximately 100% of
the outstanding shares of Credit Suisse and (ii) approximately 69.3% of the
outstanding common stock of CS First Boston, Inc., which holds all of the
outstanding common stock of CS First Boston Corporation ("CS First Boston"). CS
First Boston was one of the underwriters of the Company's 9 1/4% Senior Notes
issued in February 1994 and was one of the placement agents in the sale of the
Old Notes.

In January 1990, O.L.S. Energy-Agnews entered into a credit agreement with
Credit Suisse providing for a $28 million loan to finance the construction of
the Agnews Facility. The Company holds a 20% interest in O.L.S. Energy-Agnews.
The loan is collateralized by all of the assets of the Agnews Facility and bears
interest on the unpaid principal balance based on LIBOR plus a margin rate
varying between .50% and 1.50%. After commencement of commercial operation of
the Agnews Facility, the Facility was sold to Nynex Credit Corporation under a
sale leaseback arrangement with O.L.S. Energy-Agnews and Credit Suisse. Under
the sale leaseback, O.L.S. Energy-Agnews entered into a 22-year lease,
commencing February 1991, providing for the payment of a fixed base rental, as
well as renewal options and a purchase option at the termination of the lease.
As of December 31, 1995, O.L.S. Energy-Agnews's outstanding obligation of its
sale leaseback arrangement was $37.6 million.

In September 1990, the Company obtained a $25.3 million Credit Facility
from Credit Suisse. In April 1993, the Credit Suisse Credit Facility was amended
to increase the amount of credit available to the Company to $54.0 million. The
Credit Suisse Credit Facility is unsecured and bears interest on the amounts
outstanding from time to time, if any, at LIBOR plus .50% per annum. During
1994, the Company completed a $105.0 million public debt offering of the 9 1/4%
Senior Notes. A portion of the net proceeds were used to repay $52.6 million
indebtedness outstanding under the Credit Suisse Credit Facility. On April 21,
1995, the Company entered into the Credit Suisse Credit Facility providing for
advances of $50.0 million. On April 29, 1996, the amount of advances available
under the Credit Facility was increased to $58.0 million.

In January 1992, Sumas and its wholly owned subsidiary, ENCO, entered into
loan agreements with Prudential and Credit Suisse providing for a $120.0 million
loan to finance the construction of the Sumas Facility and acquisition of
associated gas reserves. See "Business -- Description of Facilities -- Power
Generation Facilities -- Sumas Cogeneration Facility." As of December 31, 1995,
the outstanding indebtedness of Sumas and ENCO under the term loan was $119.0
million.

In January 1995, the Company and Electrowatt entered into a management
services agreement, which replaced a prior similar agreement, under which
Electrowatt agreed to provide the Company with advisory services in connection
with the construction, financing, acquisition and development of power projects,
as well as any other advisory services as may be required by the company in
connection with the operation of the Company. The Company has agreed to pay
Electrowatt $200,000 per year for all services rendered under the management
services agreement. Pursuant to this agreement, $200,000 was paid in 1995.

In 1995, the Company paid $106,000 to Electrowatt pursuant to a guarantee
fee agreement whereby Electrowatt agreed to guarantee the payment when due of
any and all indebtedness of the Company to Credit Suisse in accordance with the
terms and conditions of the Credit Suisse Credit Facility. Under the guarantee
fee agreement, the Company has agreed to pay to Electrowatt an annual fee equal
to 1% of the average outstanding balance of the Company's indebtedness to Credit
Suisse during each quarter as compensation for all services rendered under the
guarantee fee agreement. The guarantee fee agreement terminates in January 1998.

In June 1995, Calpine repaid $57.5 million of non-recourse financing to
Credit Suisse which was outstanding indebtedness related to the Greenleaf 1 and
2 Facilities at the time of the acquisition of such facilities.

In March 1996, Electrowatt invested $50.0 million in the Company in the
form of shares of Series A Preferred Stock. See "Description of Capital
Stock -- Preferred Stock".

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<PAGE> 93

The Company believes that all transactions between the Company and its
officers, Directors, principal shareholders and affiliates have been and will be
on terms no less favorable to the Company than could be obtained from
unaffiliated parties. The Company does not currently have any established
procedures regarding conflicts of interest between Electrowatt and the Company.
The Company will consider any such conflict on a case-by-case basis.

PRINCIPAL SHAREHOLDERS

The following table sets forth certain information known to the Company
regarding beneficial ownership of the Company's Common Stock as of March 15,
1996 by (i) each person known by the Company to be the beneficial owner of more
than five percent of the outstanding shares of the Company's Common Stock, (ii)
each director of the Company, (iii) each executive officer of the Company listed
in the Summary Compensation Table and (iv) all officers and directors of the
Company as a group.

<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENTAGE OF SHARES
OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) BENEFICIALLY OWNED(1)
- --------------------------------------------------------- --------------------- ---------------------
<S> <C> <C>
Electrowatt Ltd.......................................... 2,000,000(2) 100%(2)
Bellerivestrasse 36
P.O. Box CH-8022
Zurich, Switzerland
Pierre Krafft............................................ --(3) --
Hans-Peter Aebi.......................................... --(3) --
Rudolf Boesch............................................ --(3) --
Peter Bosshard........................................... --(3) --
Peter Cartwright(4)...................................... 115,000(5) 5.4%
Lynn A. Kerby............................................ 11,750(5) *
Ann B. Curtis............................................ 27,750(5) 1.4%
Ron A. Walter............................................ 22,000(5) 1.1%
Alicia N. Noyola......................................... 6,000(5) *
Robert D. Kelly.......................................... 7,500(5) *
All executive officers and directors as a group (15 224,000(5) 10.1%
persons)...............................................
</TABLE>

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

* Less than one percent

(1) Beneficial ownership is determined in accordance with the rules of the SEC
and generally includes voting or investment power with respect to
securities. Shares of Common Stock subject to options, warrants and
convertible notes currently exercisable or convertible, or exercisable or
convertible within 60 days, are deemed outstanding for computing the
percentage of the person holding such options but are not deemed outstanding
for computing the percentage of any other person. Except as indicated by
footnote, and subject to community property laws where applicable, the
persons named in the table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them.

(2) Represents shares of Common Stock owned by Electrowatt Services, Inc., an
indirect, wholly owned subsidiary of Electrowatt.

(3) Does not include the 2,000,000 shares of Class B Common Stock owned by
Electrowatt.

(4) Mr. Cartwright's address is c/o Calpine Corporation, 50 West San Fernando
Street, San Jose, California 95113.

(5) Represents shares of the Company's Common Stock issuable upon exercise of
options that are currently exercisable or will become exercisable within 60
days after March 15, 1996.

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<PAGE> 94

DESCRIPTION OF CAPITAL STOCK

COMMON STOCK

The Company has 3,500,000 authorized shares of Class A Common Stock and
3,000,000 authorized shares of Class B Common Stock of which no shares of Class
A Common Stock are outstanding and 2,000,000 shares of Class B Common Stock are
outstanding as of April 24, 1996. All of the shares of Class B Common Stock are
held by Electrowatt. Each share of Class A Common Stock is entitled to one vote
per share, and each share of Class B Common Stock is entitled to ten votes per
share. Each class of Common Stock fully participates in any dividends declared,
although Class A shareholders are precluded from receiving stock dividends of
Class B Common Stock. During 1995, the Company paid an $800,000 cash dividend to
the holder of the shares of Class B Common Stock and anticipates paying an
$800,000 cash dividend on such shares during 1996. See "Dividend Policy." Shares
of Class B Common Stock are convertible into shares of Class A Common Stock on a
share-for-share basis at the option of the holder. The holders of Class A Common
Stock and Class B Common Stock have no preemptive or other subscription rights
and there are no redemption or sinking fund privileges applicable thereto. The
shares of Class A Common Stock and Class B Common Stock are not publicly traded.

PREFERRED STOCK

The Company has 5,000,000 authorized shares of Series A Preferred Stock,
all of which were issued and outstanding as of April 30, 1996. All of the shares
of Series A Preferred Stock are held by Electrowatt. In the event of any
liquidation or winding up of the Company, the holders of the Series A Preferred
Stock are entitled to receive, prior and in preference to any distribution on
the Common Stock, an amount of $10.00 per share for each outstanding share of
Series A Preferred Stock. Each share of Series A Preferred Stock is convertible,
at the option of the holder, into shares of Class A Common Stock at any time
during the 30-day period following the sale, transfer or other disposition of
50% or more of the Company's outstanding shares of Common Stock (the
"Transferred Stock"), based on the ratio of the original price of the Series A
Preferred Stock to the price paid for the Transferred Stock. In addition, each
share of Series A Preferred Stock automatically converts into shares of Common
Stock upon the consummation of a bona fide, firm commitment underwritten
offering, based on the ratio of 85% of the original price of the Series A
Preferred Stock to the underwritten offering price. The shares of Series A
Preferred Stock are not publicly traded. The Company intends to amend its Second
Amended and Restated Articles of Incorporation to provide that dividends may be
paid on the Series A Preferred Stock, when and if declared by the Board of
Directors.

DESCRIPTION OF NEW NOTES

GENERAL

The New Notes are to be issued under an Indenture (the "Indenture") to be
dated as of May 16, 1996, among the Company and Fleet National Bank, as trustee
(the "Trustee"), in exchange for the Old Notes. No New Notes are currently
outstanding. The terms of the New Notes will include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The New Notes
will be subject to all such terms, and holders of Senior Notes are referred to
the Indenture and the Trust Indenture Act for a statement of such terms. A copy
of the proposed form of the Indenture is available upon request made to the
Company.

The following summary of certain provisions of the Indenture does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, all the provisions of the Indenture, including the definitions of
certain terms therein.

The Company has no sinking fund or mandatory redemption obligations with
respect to the Senior Notes.

The Company is subject to the informational reporting requirements of
Sections 13 and 15(d) under the Exchange Act and, in accordance therewith, will
file certain reports and other information with the Commission. See "Additional
Information." In addition, if Sections 13 and 15(d) cease to apply to the

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<PAGE> 95

Company, the Company will covenant in the Indenture to file such reports and
information with the Trustee and the Commission, and mail such reports and
information to holders of the Senior Notes at their registered addresses, for so
long as any Senior Notes remain outstanding.

The Company conducts substantially all of its operations through its
subsidiaries. Creditors of its subsidiaries, including trade creditors, would
have a claim on the subsidiaries' assets that would be prior to the claims of
the holders of the Senior Notes. See "Risk Factors -- Risks Related to Holding
Company Structure."

TERMS OF THE SENIOR NOTES

The Old Notes were issued under the Indenture. The Senior Notes are
obligations of the Company and not of Electrowatt or any other person. The
Senior Notes will mature on May 15, 2006. The Senior Notes are limited to
$180,000,000 in aggregate principal amount and are issued in fully registered
form in denominations of $1,000 and any amount which is an integral amount
multiple of $1,000 in excess thereof.

Interest at the annual rate of 10 1/2% is payable semi-annually on May 15
and November 15 of each year while the Senior Notes are outstanding, commencing
on November 15, 1996 (each, an "Interest Payment Date"), to holders of record at
the close of business on the preceding May 1 and November 1, respectively, and
unless other arrangements are made, will be paid by check mailed to such holders
at their registered addresses, as shown on the Senior Note register. Interest
will be computed on the basis of a year of twelve months of 30 days each.
Interest began to accrue on May 16, 1996. The interest rate on the Senior Notes
will be permanently increased by one-half of one percent per annum if the
Exchange Offer is not consummated, or a registration statement with respect to
the resale of the Senior Notes is not declared effective, by the 180th calendar
day following the initial sale of the Old Notes. See "-- Registration Rights."

Payments of principal of, and premium (if any) on the Senior Notes will be
made against presentation of the Senior Notes at or after the due date for such
payments, at an office maintained by the Trustee for such purpose at Shawmut
Trust Company of New York, 14 Wall Street, 8th Floor, Window 2, New York, New
York 10005, and the Senior Notes may be presented for registration of transfer
and exchange without service charge, at such office during normal business hours
on any day on which banks in the Borough of Manhattan, in the City of New York,
are open for business.

OPTIONAL REDEMPTION

Except as set forth in the following paragraph, the Company may not redeem
the Senior Notes prior to May 15, 2001. On and after such date, the Company may
redeem the Senior Notes at any time as a whole, or from time to time in part, at
the following redemption prices (expressed in percentages of principal amount),
plus accrued interest to the redemption date, if redeemed during the 12-month
period beginning May 15:

<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
------------------------------------------------------ ----------
<S> <C>
2001.................................................. 105.250%
2002.................................................. 102.625%
2003 and thereafter................................... 100.000%
</TABLE>

The Company may redeem up to $63.0 million principal amount of Senior Notes
with the proceeds of one or more Public Equity Offerings following which there
is a Public Market, at any time as a whole or from time to time in part, at a
redemption price (expressed as a percentage of principal amount), plus accrued
interest to the redemption date, of 110.50% if redeemed at any time prior to May
15, 1999.

SELECTION FOR REDEMPTION

In the case of any partial redemption, selection of the Senior Notes for
redemption will be made by the Trustee on a pro rata basis, by lot or by such
other method that complies with applicable legal and securities exchange
requirements, if any, and that the Trustee in its sole discretion shall deem to
be fair and appropriate;

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<PAGE> 96

provided, however, that no Senior Note of $1,000 in original principal amount or
less shall be redeemed in part. If any Senior Note is to be redeemed in part
only, the notice of redemption relating to such Senior Note shall state the
portion of the principal amount thereof to be redeemed. A Senior Note in
principal amount equal to the unredeemed portion thereof will be issued in the
name of the holder thereof upon cancellation of the original Senior Note.

RANKING

The Indebtedness evidenced by the Senior Notes constitutes Senior
Indebtedness of the Company and will rank pari passu in right of payment with
all existing and future Senior Indebtedness of the Company, including, without
limitation, all obligations under the Bank Credit Agreement (as defined herein),
the Working Capital Credit Agreement (as defined herein) and the 9 1/4% Senior
Notes. At March 31, 1996, on a pro forma basis after giving effect to the King
City Transaction and the sale of the Old Notes and the application of the net
proceeds therefrom, the Company would have had outstanding approximately $285.0
million of Senior Indebtedness. The Company conducts substantially all of its
operations through its subsidiaries. Creditors of its subsidiaries, including
trade creditors, would have a claim on the subsidiaries' assets that would be
prior to the claims of the holders of the Senior Notes. On a pro forma basis,
after giving effect to the King City Transaction and the sale of the Old Notes
and the application of the proceeds thereof as described in "Use of Proceeds,"
as of March 31, 1996 the Company's subsidiaries would have $212.6 million of
debt (excluding trade debt) outstanding. See "Risk Factors -- Risks Related to
Holding Company Structure."

CERTAIN DEFINITIONS

Set forth below is a summary of certain defined terms used in the
Indentures.

"Acquired Indebtedness" means Indebtedness of a Person existing at the time
at which such Person became a Subsidiary and not incurred in connection with, or
in contemplation of, such Person becoming a Subsidiary. Acquired Indebtedness
shall be deemed to be Incurred on the date the acquired Person becomes a
Subsidiary.

"Additional Assets" means (i) any property or assets related to the Line of
Business which will be owned and used by the Company or a Restricted Subsidiary;
(ii) the Capital Stock of a Person that becomes a Restricted Subsidiary as a
result of the acquisition of such Capital Stock by the Company or another
Restricted Subsidiary or (iii) Capital Stock constituting a minority interest in
any Person that at such time is a Restricted Subsidiary.

"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the provisions described under "-- Covenants -- Transactions with
Affiliates" and "-- Sales of Assets" only, "Affiliate" shall also mean any
beneficial owner of 5% or more of the total Voting Shares (on a Fully Diluted
Basis) of the Company or of rights or warrants to purchase such stock (whether
or not currently exercisable) and any Person who would be an Affiliate of any
such beneficial owner pursuant to the first sentence hereof. For purposes of the
provision described under "-- Covenants -- Limitation on Restricted Payments"
only, "Affiliate" shall also mean any Person of which the Company owns 5% or
more of any class of Capital Stock or rights to acquire 5% or more or any class
of Capital Stock and any Person who would be an Affiliate of any such Person
pursuant to the first sentence hereof.

"Asset Sale" means any sale, transfer or other disposition (including by
way of merger, consolidation or sale leaseback transactions, but excluding
(except as provided for in the provisions described in the last paragraph under
"-- Covenants -- Sales of Assets") those permitted by the provisions described
under "-- Covenants -- Merger and Consolidation" and "-- Covenants -- Limitation
on Sale/Leaseback Transactions") in one or a series of transactions by the
Company or any Restricted Subsidiary to any Person other

93
<PAGE> 97

than the Company or any Wholly Owned Subsidiary, of (i) all or any of the
Capital Stock of the Company or any Restricted Subsidiary, (ii) all or
substantially all of the assets of any operating unit, Facility, division or
line of business of the Company or any Restricted Subsidiary or (iii) any other
property or assets or rights to acquire property or assets of the Company or any
Restricted Subsidiary outside of the ordinary course of business of the Company
or such Restricted Subsidiary.

"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the Senior Notes, compounded annually) of the total obligations of the
lessee for rental payments during the remaining term of the lease included in
such Sale/Leaseback Transaction (including any period for which such lease has
been extended).

"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of (A) the numbers of years from the date of determination to
the dates of each successive scheduled principal payment of such Indebtedness or
scheduled redemption or similar payment with respect to such Indebtedness or
Preferred Stock multiplied by (B) the amount of such payment by (ii) the sum of
all such payments.

"Bank Credit Agreement" means the Promissory Grid Note, dated as of April
21, 1995, between the Company and Credit Suisse, New York Branch, as amended,
refinanced, renewed or extended from time to time.

"Board of Directors" means the Board of Directors of the Company or any
authorized committee thereof.

"Business Day" means each day which is not a Legal Holiday.

"Capital Stock" means any and all shares, interests, participations or
other equivalents (however designated) of capital stock of a corporation or any
and all equivalent ownership interests in a Person (other than a corporation).

"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present value
of the rental obligations of such Person as lessee, in conformity with GAAP, is
required to be capitalized on the balance sheet of such Person; the Stated
Maturity thereof shall be the date of the last payment of rent or any other
amount due under such lease prior to the first date upon which such lease may be
terminated by the lessee without payment of a penalty; and "Capitalized Lease
Obligations" means the rental obligations, as aforesaid, under such lease.

"Change of Control" means the occurrence of any of the following events:
(i) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act), other than Parent or an underwriter engaged in a firm commitment
underwriting on behalf of the Company, is or becomes the beneficial owner (as
such term is used in Rules 13d-3 and 13d-5 under the Exchange Act, except that
for purposes of this clause (i) a person shall be deemed to have beneficial
ownership of all shares that such person has the right to acquire, whether such
right is exercisable immediately or only after the passage of time), directly or
indirectly, of more than (x) at any time prior to the occurrence of a Public
Market, a greater percentage of the total Voting Shares of the Company than is
held by Parent and its Affiliates, and (y) at any time after the occurrence of a
Public Market, 40% of the total Voting Shares of the Company provided that such
ownership is greater than the total Voting Shares held by Parent and its
Affiliates; (ii) during any period of two consecutive years, individuals who at
the beginning of such period constituted the Board of Directors (together with
any new directors whose election by the Board of Directors or whose nomination
for election by the stockholders was approved by a vote of 66 2/3% of the
directors of the Company then still in office who were either directors at the
beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Board of Directors then in office; (iii) all or substantially all of the
Company's and its Restricted Subsidiaries' assets are sold, leased, exchanged or
otherwise transferred to any Person or group of Persons acting in concert; or
(iv) the Company is liquidated or dissolved or adopts a plan of liquidation.

"Change of Control Triggering Event" means (A) if a Rating Agency maintains
a rating of the Senior Notes at the time a Change of Control occurs, the
occurrence of a Change of Control and the occurrence of a

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Rating Decline or (B) if no Rating Agency maintains a rating of the Senior Notes
at the time a Change of Control occurs, the occurrence of a Change of Control.

"Code" means the Internal Revenue Code of 1986, as amended.

"Company" means the party named as such in the Indenture until a successor
replaces it pursuant to the terms and conditions of the Indenture and thereafter
means the successor.

"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters to (ii) the Consolidated Interest Expense
(excluding interest capitalized in connection with the construction of a new
Facility which interest is capitalized during the construction of such Facility)
for such four fiscal quarters; provided, however, that if the Company or any
Restricted Subsidiary has Incurred any Indebtedness since the beginning of such
period that remains outstanding or if the transaction giving rise to the need to
calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness, or
both, both EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving effect on a pro forma basis to (x) such new Indebtedness
as if such Indebtedness had been Incurred on the first day of such period and
(y) the repayment, redemption, repurchase, defeasance or discharge of any
Indebtedness repaid, redeemed, repurchased, defeased or discharged with the
proceeds of such new Indebtedness as if such repayment, redemption, repurchase,
defeasance or discharge had been made on the first day of such period; provided,
further, that if within the period during which EBITDA or Consolidated Interest
Expense is measured, the Company or any of its Restricted Subsidiaries shall
have made any Asset Sales, (x) the EBITDA for such period shall be reduced by an
amount equal to the EBITDA (if positive) directly attributable to the assets or
Capital Stock which are the subject of such Asset Sales for such period, or
increased by an amount equal to the EBITDA (if negative), directly attributable
thereto for such period and (y) the Consolidated Interest Expense for such
period shall be reduced by an amount equal to the Consolidated Interest Expense
directly attributable to any Indebtedness for which neither Company nor any
Restricted Subsidiary shall continue to be liable as a result of any such Asset
Sale or repaid, redeemed, defeased, discharged or otherwise retired in
connection with or with the proceeds of the assets or Capital Stock which are
the subject of such Asset Sales for such period; and provided, further, that if
the Company or any Restricted Subsidiary shall have made any acquisition of
assets or Capital Stock (occurring by merger or otherwise) since the beginning
of such period (including any acquisition of assets or Capital Stock occurring
in connection with a transaction causing a calculation to be made hereunder) the
EBITDA and Consolidated Interest Expense for such period shall be calculated,
after giving pro forma effect thereto (and without regard to clause (iv) of the
proviso to the definition of "Consolidated Net Income"), as if such acquisition
of assets or Capital Stock took place on the first day of such period. For all
purposes of this definition, if the date of determination occurs prior to the
completion of the first four full fiscal quarters following the Issue Date, then
"EBITDA" and "Consolidated Interest Expense" shall be calculated after giving
effect on a pro forma basis to the Offering as if the Offering occurred on the
first day of the four full fiscal quarters that were completed preceding such
date of determination.

"Consolidated Current Liabilities," as of the date of determination, means
the aggregate amount of liabilities of the Company and its Consolidated
Restricted Subsidiaries which may properly be classified as current liabilities
(including taxes accrued as estimated), after eliminating (i) all inter-company
items between the Company and any Consolidated Subsidiary and (ii) all current
maturities of long-term Indebtedness, all as determined in accordance with GAAP.

"Consolidated Income Tax Expense" means, for any period, as applied to the
Company, the provision for local, state, federal or foreign income taxes on a
Consolidated basis for such period determined in accordance with GAAP.

"Consolidated Interest Expense" means, for any period, as applied to the
Company, the sum of (a) the total interest expense of the Company and its
Consolidated Restricted Subsidiaries for such period as determined in accordance
with GAAP, including, without limitation, (i) amortization of debt issuance
costs or of original issue discount on any Indebtedness and the interest portion
of any deferred payment obligation, calculated in accordance with the effective
interest method of accounting, (ii) accrued interest, (iii) noncash interest
payments, (iv) commissions, discounts and other fees and charges owed with
respect to letters of

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credit and bankers' acceptance financing, (v) interest actually paid by the
Company or any such Subsidiary under any guarantee of Indebtedness or other
obligation of any other Person and (vi) net costs associated with Interest Rate
Agreements (including amortization of discounts) and Currency Agreements, plus
(b) all but the principal component of rentals in respect of Capitalized Lease
Obligations paid, accrued, or scheduled to be paid or accrued by the Company or
its Consolidated Restricted Subsidiaries, plus (c) one-third of all Operating
Lease Obligations paid, accrued and/or scheduled to be paid by the Company and
its Consolidated Restricted Subsidiaries, plus (d) capitalized interest, plus
(e) dividends paid in respect of Preferred Stock of the Company or any
Restricted Subsidiary held by Persons other than the Company or a Wholly Owned
Subsidiary, plus (f) cash contributions to any employee stock ownership plan to
the extent such contributions are used by such employee stock ownership plan to
pay interest or fees to any person (other than the Company or a Restricted
Subsidiary) in connection with loans incurred by such employee stock ownership
plan to purchase Capital Stock of the Company.

"Consolidated Net Income (Loss)" means, for any period, as applied to the
Company, the Consolidated net income (loss) of the Company and its Consolidated
Restricted Subsidiaries for such period, determined in accordance with GAAP,
adjusted by excluding (without duplication), to the extent included in such net
income (loss), the following: (i) all extraordinary gains or losses; (ii) any
net income of any Person if such Person is not a Domestic Subsidiary, except
that (A) the Company's equity in the net income of any such Person for such
period shall be included in Consolidated Net Income (Loss) up to the aggregate
amount of cash actually distributed by such Person during such period to the
Company or a Restricted Subsidiary as a dividend or other distribution and (B)
the equity of the Company or a Restricted Subsidiary in a net loss of any such
Person for such period shall be included in determining Consolidated Net Income
(Loss); (iii) the net income of any Restricted Subsidiary to the extent that the
declaration or payment of dividends or similar distributions by such Restricted
Subsidiary of such income is not at the time thereof permitted, directly or
indirectly, by operation of the terms of its charter or bylaws or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to such Restricted Subsidiary or its stockholders; (iv) any net
income (or loss) of any Person combined with the Company or any of its
Restricted Subsidiaries on a "pooling of interests" basis attributable to any
period prior to the date of such combination; (v) any gain (but not loss)
realized upon the sale or other disposition of any property, plant or equipment
of the Company or its Restricted Subsidiaries (including pursuant to any
sale-and-leaseback arrangement) which is not sold or otherwise disposed of in
the ordinary course of business and any gain (but not loss) realized upon the
sale or other disposition by the Company or any Restricted Subsidiary of any
Capital Stock of any Person, provided that losses shall be included on an
after-tax basis; and (vi) the cumulative effect of a change in accounting
principles; and further adjusted by subtracting from such net income the tax
liability of any parent of the Company to the extent of payments made to such
parent by the Company pursuant to any tax sharing agreement or other arrangement
for such period.

"Consolidated Net Tangible Assets" means, as of any date of determination,
as applied to the Company, the total amount of assets (less accumulated
depreciation or amortization, allowances for doubtful receivables, other
applicable reserves and other properly deductible items) which would appear on a
Consolidated balance sheet of the Company and its Consolidated Restricted
Subsidiaries, determined on a Consolidated basis in accordance with GAAP, and
after giving effect to purchase accounting and after deducting therefrom, to the
extent otherwise included, the amounts of: (i) Consolidated Current Liabilities;
(ii) minority interests in Consolidated Subsidiaries held by Persons other than
the Company or a Restricted Subsidiary; (iii) excess of cost over fair value of
assets of businesses acquired, as determined in good faith by the Board of
Directors; (iv) 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 GAAP; (v) 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; (vi) treasury stock; and (vii) 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 such obligation is
not reflected in Consolidated Current Liabilities.

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"Consolidated Net Worth" means, at any date of determination, as applied to
the Company, stockholders' equity as set forth on the most recently available
Consolidated balance sheet of the Company and its Consolidated Restricted
Subsidiaries (which shall be as of a date no more than 60 days prior to the date
of such computation), less any amounts attributable to Redeemable Stock or
Exchangeable Stock, the cost of treasury stock and the principal amount of any
promissory notes receivable from the sale of Capital Stock of the Company or any
Subsidiary.

"Consolidation" means, with respect to any Person, the consolidation of
accounts of such Person and each of its subsidiaries if and to the extent the
accounts of such Person and such subsidiaries are consolidated in accordance
with GAAP. The term "Consolidated" shall have a correlative meaning.

"Controlled Non-Subsidiary Investment" means any Investment of the type
specified in clause (iv) of the first sentence under
"-- Covenants -- Limitations on Restricted Payments" which is made by the
Company or its Restricted Subsidiaries in an Affiliate other than a Subsidiary;
provided that (i) at the time such Investment is made, no Default or Event of
Default shall have occurred and be continuing (or would result therefrom); (ii)
after giving effect to the Investment and to the Incurrence of any Indebtedness
in connection therewith on a pro forma basis, the Consolidated Coverage Ratio is
at least 1.75:1; (iii) after giving effect to the Investment, the aggregate
Investment made by the Company and its Subsidiaries in Controlled Non-Subsidiary
Investments does not exceed $100,000,000; (iv) the Person in which the
Investment is made is engaged only in the business described under
"-- Covenants -- Limitation on Changes in the Nature of Business" including
Unrelated Businesses to the extent permitted under "-- Covenants -- Limitations
on Changes in the Nature of the Business"; (v) the Company, directly or through
its Restricted Subsidiaries is entitled to (A) in the case of an Investment in
Capital Stock, receive dividends or other distributions on its Investment at the
same time as or prior to, and on a basis pro rata with, any other holder or
holders of Capital Stock of such Person and (B) in the case of an Investment
other than in Capital Stock, receive interest thereon at a rate per annum not
less than the rate on the Senior Notes and, on the liquidation or dissolution of
such Person, receive repayment of the principal thereof prior to the payment of
any dividends or distributions on Capital Stock of such Person; (vi) the Company
directly or through its Restricted Subsidiaries, either (x) controls, under an
operating and management agreement or otherwise, the day to day management and
operation of such Person and any Facility of the Person in which the Investment
is made or (y) has significant influence over the management and operation of
such Person and any Facility of such Person in all material respects
(significant influence to include the right to control or veto any material act
or decision) in connection with such management or operation; and (vii) any
encumbrances or restrictions on the ability of the Person in which the
Investment is made to make the payments, distributions, losses, advances or
transfers referred to in clauses (i) through (iii) under
"-- Covenants -- Limitations on Payment Restrictions Affecting Subsidiaries" in
the written opinion of the President or Chief Financial Officer of the Company
(x) is required in order to obtain necessary financing, (y) is customary for
such financings and (z) applies only to the assets of or revenues of the Person
in whom the Investment is made.

"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary against fluctuations in currency values to
or under which the Company or any Restricted Subsidiary is a party or a
beneficiary on the Issue Date or becomes a party or beneficiary thereafter.

"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.

"defaulted interest" means any interest on any Senior Note which is
payable, but is not punctually paid or duly provided for on any Interest Payment
Date.

"Domestic Subsidiary" means a Restricted Subsidiary that is not a Foreign
Subsidiary.

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(b) Consolidated Interest Expense, (c) depreciation expense, (d) amortization
expense and (e) all other non-cash items reducing Consolidated Net Income, less
all non-cash items increasing Consolidated Net Income, in each case for such
period; provided that, if the Company has any Subsidiary that is not a Wholly
Owned Subsidiary, EBITDA shall be reduced (to the extent not otherwise reduced
by GAAP) by an amount equal to (A) the consolidated net income (loss) of such
Subsidiary (to the extent included in Consolidated Net Income (Loss)) multiplied
by (B) the quotient of (1) the number of shares of outstanding common stock of
such Subsidiary not owned on the last day of such period by the Company or any
Wholly Owned Subsidiary of the Company divided by (2) the total number of shares
of outstanding common stock of such Subsidiary on the last day of such period.

"Exchangeable Stock" means any Capital Stock which by its terms is
exchangeable or convertible at the option of any Person other than the Company
into another security (other than Capital Stock of the Company which is neither
Exchangeable Stock nor Redeemable Stock).

"Existing Agreements" means the Management Services Agreement, dated
January 1, 1992 between the Company and Parent, and the Guarantee Fee Agreement,
dated January 1, 1992 between the Company and Parent, in each case as in effect
on the date of the Indenture.

"Facility" means a power generation facility or energy producing facility,
including any related steam fields or gas reserves.

"Foreign Asset Sale" means an Asset Sale in respect of the Capital Stock or
assets of a Foreign Subsidiary or a Restricted Subsidiary of the type described
in Section 936 of the Code to the extent that the proceeds of such Asset Sale
are received by a Person subject in respect of such proceeds to the tax laws of
a jurisdiction other than the United States of America or any State thereof or
the District of Columbia.

"Foreign Subsidiary" means a Restricted Subsidiary that is incorporated in
a jurisdiction other than the United States of America or a State thereof or the
District of Columbia.

"Fully Diluted Basis" means after giving effect to the exercise of any
outstanding options, warrants or rights to purchase Voting Shares and the
conversion or exchange of any securities convertible into or exchangeable for
Voting Shares.

"GAAP" means generally accepted accounting principles in the United States
of America as in effect and, to the extent optional, adopted by the Company on
the Issue Date, consistently applied, including, without limitation, those set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board.

"guarantee" means, as applied to any obligation, contingent or otherwise,
of any Person, (i) a guarantee, direct or indirect, in any manner, of any part
or all of such obligation (other than by endorsement of negotiable instruments
for collection in the ordinary course of business) and (ii) an agreement, direct
or indirect, contingent or otherwise, the practical effect of which is to insure
in any way the payment or performance (or payment of damages in the event of
nonperformance) of any part or all of such obligation, including the payment of
amounts drawn down under letters of credit.

"Holder" or "Securityholder" means the Person in whose name a Senior Note
is registered on the Registrar's books.

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Stated Maturity thereof or the date of any scheduled or required principal
payment thereon or the time or circumstances under which such Indebtedness may
or shall be redeemed, (C) if such Indebtedness is contractually subordinated in
right of payment to the Securities, modify or affect, in any manner adverse to
the Holders, such subordination, (D) if the Company is the obligor thereon,
provide that a Restricted Subsidiary shall be an obligor, (E) if such
Indebtedness is Non-Recourse Debt, cause such Indebtedness to no longer
constitute Non-Recourse Debt or (F) violate, or cause the Indebtedness to
violate, the provisions described under "-- Covenants -- Limitation on Payment
Restrictions Affecting Subsidiaries" and "-- Limitation on Liens" and (ii) such
Indebtedness would, after giving effect to such amendment, modification or
waiver as if it were an Incurrence, comply with clause (i) of the first proviso
to the definition of "Refinancing Indebtedness."

"Indebtedness" of any Person means, without duplication, (i) the principal
of and premium (if any such premium is then due and owing) in respect of (A)
indebtedness of such Person for money borrowed and (B) indebtedness evidenced by
notes, debentures, bonds or other similar instruments for the payment of which
such Person is responsible or liable; (ii) all Capitalized Lease Obligations of
such Person; (iii) all obligations of such Person Incurred as the deferred
purchase price of property, all conditional sale obligations of such Person and
all obligations of such Person under any title retention agreement; (iv) all
obligations of such 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 (i) through (iii) above) entered into in the ordinary
course of business of such Person to the extent such letters of credit are not
drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no
later than the tenth Business Day following receipt by such Person of a demand
for reimbursement following payment on the letter of credit); (v) Redeemable
Stock of such Person and, in the case of any Subsidiary, any other Preferred
Stock, in either case valued at, in the case of Redeemable Stock, the greater of
its voluntary or involuntary maximum fixed repurchase price exclusive of accrued
and unpaid dividends or, in the case of Preferred Stock that is not Redeemable
Stock, its liquidation preference exclusive of accrued and unpaid dividends;
(vi) contractual obligations to repurchase goods sold or distributed; (vii) all
obligations of such Person in respect of Interest Rate Agreements and Currency
Agreements; (viii) all obligations of the type referred to in clauses (i)
through (vii) of other Persons and all dividends of other Persons for the
payment of which, in either case, such Person is responsible or liable, directly
or indirectly, as obligor, guarantor or otherwise, including by means of any
guarantee; and (ix) all obligations of the type referred to in clauses (i)
through (viii) of other Persons secured by any Lien on any property or asset of
such Person (whether or not such obligation is assumed by such Person), the
amount of such obligation being deemed to be the lesser of the value of such
property or assets or the amount of the obligation so secured; provided,
however, that Indebtedness shall not include trade accounts payable arising in
the ordinary course of business. For purposes hereof, the "maximum fixed
repurchase price" of any Redeemable Stock which does not have a fixed repurchase
price shall be calculated in accordance with the terms of such Redeemable Stock
as if such Redeemable Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the Indenture, and if such price
is based upon, or measured by, the fair market value of such Redeemable Stock,
such fair market value to be determined in good faith by the Board of Directors.
The amount of Indebtedness of any Person at any date shall be, with respect to
unconditional obligations, the outstanding balance at such date of all such
obligations as described above and, with respect to any contingent obligations
(other than pursuant to clause (vi) above, which shall be included to the extent
reflected on the balance sheet of such Person in accordance with GAAP) at such
date, the maximum liability determined by such 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 such obligation.

"Interest Payment Date" means the stated maturity of an installment of
interest on the Senior Notes.

"Interest Rate Agreement" means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement or other similar agreement or arrangement designed
to protect against fluctuations in interest rates to or under which the Company
or any of its Restricted Subsidiaries is a party or beneficiary on the Issue
Date or becomes a party or beneficiary thereunder.

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"Investment" means, with respect to any Person, any direct or indirect
advance, loan or other extension of credit or capital contribution to (by means
of any transfer of cash or other property to others or any payment for property
or services for the account or use of others), or any other investment in any
other Person, or any purchase or acquisition by such Person of any Capital
Stock, bonds, notes, debentures or other securities or assets issued or owned by
any other Person (whether by merger, consolidation, amalgamation, sale of assets
or otherwise). For purposes of the definition of "Unrestricted Subsidiary" and
the provisions set forth under "-- Covenants -- Limitation on Restricted
Payments", (i) "Investment" shall include the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value of the
net assets of any Restricted Subsidiary at the time that such Restricted
Subsidiary is designated an Unrestricted Subsidiary and shall exclude the fair
market value of the net assets of any Unrestricted Subsidiary at the time that
such Unrestricted Subsidiary is designated a Restricted Subsidiary and (ii) any
property transferred to or from an Unrestricted Subsidiary shall be valued at
its fair market value at the time of such transfer, in each case as determined
by the Board of Directors in good faith. For purposes of determining the
aggregate amount of Investments in Controlled Non-Subsidiary Investments, the
amount of such Investments shall be reduced by an amount equal to the net
payments of interest on Indebtedness, dividends, repayments of interest on
Indebtedness, dividends, repayments of loans or advances, or other transfers of
assets, in each case to the Company or any Restricted Subsidiary from any Person
in whom a Controlled Non-Subsidiary Investment has been made, not to exceed in
the case of any Controlled Non-Subsidiary Investment the amount of Investments
previously made by the Company or any Restricted Subsidiary in such Person.

"Investment Grade" means, with respect to the Senior Notes, a rating of
Baa3 or higher by Moody's together with a rating of BBB- or higher by S&P,
provided that neither of such entities shall have announced or informed the
Company that it is reviewing the rating of the Senior Notes in light of
downgrading the rating thereof.

"Issue Date" means the date on which the Senior Notes are originally issued
under the Indenture.

"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).

"Line of Business" means the ownership, acquisition, development,
construction, improvement and operation of Facilities.

"Moody's" means Moody's Investors Service, Inc. and its successors.

"Net Available Cash" means, with respect to any Asset Sale, the cash or
cash equivalent payments received by the Company or a Subsidiary in connection
with such Asset Sale (including any cash received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only as
or when received and also including the proceeds of other property received when
converted to cash or cash equivalents) net of the sum of, without duplication,
(i) all reasonable legal, title and recording tax expenses, reasonable
commissions, and other reasonable fees and expenses incurred directly relating
to such Asset Sale, (ii) all local, state, federal and foreign taxes required to
be paid or accrued as a liability by the Company or any of its Restricted
Subsidiaries as a consequence of such Asset Sale, (iii) payments made to repay
Indebtedness which is secured by any assets subject to such Asset Sale in
accordance with the terms of any Lien upon or other security agreement of any
kind with respect to such assets, or which must by its terms, or by applicable
law, be repaid out of the proceeds from such Asset Sale and (iv) all
distributions required by any contract entered into other than in contemplation
of such Asset Sale to be paid to any holder of a minority equity interest in
such Restricted Subsidiary as a result of such Asset Sale, so long as such
distributions do not exceed such minority holder's pro rata portion (based on
such minority holder's proportionate equity interest) of the cash or cash
equivalent payments described above, net of the amounts set forth in clauses
(i)-(iii) above.

"Net Cash Proceeds" means, with respect to any issuance or sale of Capital
Stock by any Person, the cash proceeds to such Person of such issuance or sale
net of attorneys' fees, accountants' fees, underwriters' or placement agents'
fees, discounts or commissions and brokerage, consultancy and other fees
actually incurred

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by such Person in connection with such issuance or sale and net of taxes paid or
payable by such Person as a result thereof.

"Non-Convertible Capital Stock" means, with respect to any corporation, any
Capital Stock of such corporation which is not convertible into another security
other than non-convertible common stock of such corporation; provided, however,
that Non-Convertible Capital Stock shall not include any Redeemable Stock or
Exchangeable Stock.

"Non-Recourse Debt" means Indebtedness of the Company or any Restricted
Subsidiary that is Incurred to acquire, construct or develop a Facility provided
that such Indebtedness is without recourse to the Company or any Restricted
Subsidiary or to any assets of the Company or any such Restricted Subsidiary
other than such Facility and the income from and proceeds of such Facility.

"Offering" means the public offering and sale of the Senior Notes.

"Officers' Certificate" means a certificate signed by two officers, one of
whom must be the President, the Treasurer or a Vice President of the Company.
Each Officers' Certificate (other than certificates provided pursuant to TIA
Section 314(a)(4)) shall include the statements provided for in TIA Section
314(e).

"Operating Lease Obligations" means any obligation of the Company and its
Restricted Subsidiaries on a Consolidated basis incurred or assumed under or in
connection with any lease of real or personal property which, in accordance with
GAAP, is not required to be classified and accounted for as a capital lease.

"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel, if so acceptable, may be an employee of
or counsel to the Company or the Trustee. Each such Opinion of Counsel shall
include the statements provided for in TIA Section 314(e).

"Parent" means Electrowatt Ltd, a Swiss corporation, and any subsidiary
thereof holding Voting Shares of the Company.

"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.

"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 such
corporation, over shares of Capital Stock of any other class of such
corporation.

"principal" of a Senior Note means the principal of the Senior Note plus,
if applicable, the premium on the Senior Note.

"Public Equity Offering" means an underwritten primary public offering of
equity securities of the Company pursuant to an effective registration statement
under the Securities Act.

"Public Market" shall be deemed to have occurred if (x) a Public Equity
Offering has been consummated and (y) at least 25% (for purposes of the
definition of "Change of Control") or 15% (for purposes of the provisions
described under "-- Optional Redemption") of the total issued and outstanding
common stock of the Company has been distributed by means of an effective
registration statement under the Securities Act or sales pursuant to Rule 144
under the Securities Act.

"PUHCA" means the Public Utility Holding Company Act of 1935, as amended.

"PURPA" means the Public Utility Regulatory Policies Act of 1978, as
amended.

"Rating Agencies" is defined to mean S&P and Moody's.

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gradations within Rating Categories (+ and - for S&P; 1, 2 and 3 for Moody's)
shall be taken into account (e.g., with respect to S&P, a decline in a rating
from BB+ to BB, as well as from BB- to B+, will constitute a decrease of one
gradation).

"Rating Decline" is defined to mean the occurrence of (i) or (ii) below on,
or within 90 days after, the earliest of (A) the Company having become aware
that a Change of Control has occurred, (B) the date of public notice of the
occurrence of a Change of Control or (C) the date of public notice of the
intention by Parent or the Company to approve, recommend or enter into, any
transaction which, if consummated, would result in a Change of Control (which
period shall be extended so long as the rating of the Senior Notes is under
publicly announced consideration or possible downgrade by either of the Rating
Agencies), (i) a decrease of the rating of the Senior Notes by either Rating
Agency by one or more rating gradations or (ii) the Company shall fail to
promptly advise the Rating Agencies, in writing, of such occurrence or any
subsequent material developments or shall fail to use its best efforts to
obtain, from at least one Rating Agency, a written, publicly announced
affirmation of its rating of the Senior Notes, stating that it is not
downgrading, and is not considering downgrading, the Senior Notes.

"Redeemable Stock" means any class or series of Capital Stock of any Person
that (a) by its terms, by the terms of any security into which it is convertible
or exchangeable or otherwise is, or upon the happening of an event or passage of
time would be, required to be redeemed (in whole or in part) on or prior to the
first anniversary of the Stated Maturity of the Senior Notes, (b) is redeemable
at the option of the holder thereof at any time on or prior to the first
anniversary of the Stated Maturity of the Senior Notes (other than on a Change
of Control or Asset Sale, provided that such Change of Control or Asset Sale
shall not yet have occurred) or (c) is convertible into or exchangeable for
Capital Stock referred to in clause (a) or clause (b) above or debt securities
at any time prior to the first anniversary of the Stated Maturity of the Senior
Notes.

"Refinancing Indebtedness" means Indebtedness that refunds, refinances,
replaces, renews, repays or extends (including pursuant to any defeasance or
discharge mechanism) (collectively, "refinances," and "refinanced" shall have a
correlative meaning) any Indebtedness of the Company or a Restricted Subsidiary
existing on the Issue Date or Incurred in compliance with the Indenture
(including Indebtedness of the Company that refinances Indebtedness of any
Restricted Subsidiary and Indebtedness of any Restricted Subsidiary that
refinances Indebtedness of another Restricted Subsidiary) including Indebtedness
that refinances Refinancing Indebtedness; provided, however, that (i) if the
Indebtedness being refinanced is contractually subordinated in right of payment
to the Senior Notes, the Refinancing Indebtedness shall be contractually
subordinated in right of payment to the Senior Notes to at least the same extent
as the Indebtedness being refinanced, (ii) if the Indebtedness being refinanced
is Non-Recourse Debt, such Refinancing Indebtedness shall be Non-Recourse Debt,
(iii) the Refinancing Indebtedness is scheduled to mature either (a) no earlier
than the Indebtedness being refinanced or (b) after the Stated Maturity of the
Senior Notes, (iv) the Refinancing Indebtedness has an Average Life at the time
such Refinancing Indebtedness is Incurred that is equal to or greater than the
Average Life of the Indebtedness being refinanced and (v) such Refinancing
Indebtedness is in an aggregate principal amount (or if issued with original
issue discount, an aggregate issue price) that is equal to or less than the
aggregate principal amount (or if issued with original issue discount, the
aggregate accreted value) then outstanding (plus fees and expenses, including
any premium, swap breakage and defeasance costs) under the Indebtedness being
refinanced; and provided, further, that Refinancing Indebtedness shall not
include (x) Indebtedness of a Subsidiary of the Company that refinances
Indebtedness of the Company or (y) Indebtedness of the Company or a Restricted
Subsidiary that refinances Indebtedness of an Unrestricted Subsidiary.

"Related Assets" means electric power plants that, on the Issue Date,
produce electricity solely by utilizing steam from steam fields owned and
operated by a Restricted Subsidiary that is a Wholly Owned Subsidiary on the
Issue Date.

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Asset Indebtedness is Incurred contemporaneously with a Refinancing of all of
the Non-Recourse Debt of such Restricted Subsidiary then outstanding and (ii)
the principal amount of such Related Asset Indebtedness shall not exceed the
purchase price of the Related Assets plus reasonable out-of-pocket transaction
costs and expenses of the Company and its Restricted Subsidiaries required to
acquire, or finance the acquisition of, such Related Assets.

"Restricted Subsidiary" means any Subsidiary of the Company that is not
designated an Unrestricted Subsidiary by the Board of Directors.

"S&P" means Standard and Poor's Corporation and its successors.

"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Subsidiary transfers such
property to a Person and leases it back from such Person, other than leases for
a term of not more than 36 months or between the Company and a Wholly Owned
Subsidiary or between Wholly Owned Subsidiaries.

"Senior Indebtedness" means (i) all obligations consisting of the principal
of and premium, if any, and accrued and unpaid interest (including interest
accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the Company whether or not post-filing interest is
allowed in such proceeding), whether existing on the Issue Date or thereafter
Incurred, in respect of (A) Indebtedness of the Company for money borrowed and
(B) Indebtedness evidenced by notes, debentures, bonds or other similar
instruments for the payment of which the Company is responsible or liable; (ii)
all Capitalized Lease Obligations of the Company; (iii) all obligations of the
Company (A) for the reimbursement of any obligor on any letter of credit,
banker's acceptance or similar credit transaction, (B) under Interest Rate
Agreements and Currency Agreements entered into in respect of any obligations
described in clauses (i) and (ii) or (C) issued or assumed as the deferred
purchase price of property, and all conditional sale obligations of the Company
and all obligations of the Company under any title retention agreement; (iv) all
guarantees of the Company with respect to obligations of other persons of the
type referred to in clauses (ii) and (iii) and with respect to the payment of
dividends of other Persons; and (v) all obligations of the Company consisting of
modifications, renewals, extensions, replacements and refundings of any
obligations described in clauses (i), (ii), (iii) or (iv); unless, in the
instrument creating or evidencing the same or pursuant to which the same is
outstanding, it is provided that such obligations are subordinated in right of
payment to the Senior Notes, or any other Indebtedness or obligation of the
Company; provided, however, that Senior Indebtedness shall not be deemed to
include (1) any obligation of the Company to any Subsidiary, (2) any liability
for Federal, state, local or other taxes or (3) any accounts payable or other
liability to trade creditors arising in the ordinary course of business
(including guarantees thereof or instruments evidencing such liabilities).

"Significant Subsidiary" means any Subsidiary (other than an Unrestricted
Subsidiary) that would be a "Significant Subsidiary" of the Company within the
meaning of Rule 1-02 under Regulations S-X promulgated by the SEC.

"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the principal of such security is
due and payable, including pursuant to any mandatory redemption provision (but
excluding any provision providing for the repurchase of such security at the
option of the holder thereof upon the happening of any contingency).

"Subordinated Indebtedness" means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter Incurred) which is contractually
subordinated or junior in right of payment to the Senior Notes or any other
Indebtedness of the Company.

"Subsidiary" means, as applied to any Person, any corporation, limited or
general partnership, trust, association or other business entity of which an
aggregate of at least a majority of the outstanding Voting Shares or an
equivalent controlling interest therein, of such Person is, at the time,
directly or indirectly, owned by such Person and/or one or more Subsidiaries of
such Person.

"Unrelated Business" means any business other than the Line of Business.

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"Unrestricted Subsidiary" means (i) any Subsidiary that at the time of
determination shall be designated an Unrestricted Subsidiary by the Board of
Directors in the manner provided below and (ii) any subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary
(including any newly acquired or newly formed Subsidiary) to be an Unrestricted
Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or holds
any Lien on any property of, the Company or any other Subsidiary that is not a
Subsidiary of the Subsidiary to be so designated; provided, that either (A) the
Subsidiary to be so designated has total assets of $1,000 or less or (B) if such
Subsidiary has assets greater than $1,000, that such designation would be
permitted pursuant to the provisions under "Covenants -- Limitation on
Restricted Payments". The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary of the Company; provided, however, that
immediately after giving effect to such designation (x) the Company could Incur
$1.00 of additional Indebtedness pursuant to the first paragraph of
"Covenants -- Limitation on Incurrence of Indebtedness" and (y) no Default or
Event of Default shall have occurred and be continuing. Any such designation by
the Board of Directors shall be evidenced to the Trustee by promptly filing with
the Trustee a copy of the board resolution giving effect to such designation and
an Officers' Certificate certifying that such designation complied with the
foregoing provisions; provided, however, that the failure to so file such
resolution and/or Officers' Certificate with the Trustee shall not impair or
affect the validity of such designation.

"U.S. Government Obligations" means securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case under
clauses (i) or (ii) are not callable or redeemable before the maturity thereof.

"Voting Shares", with respect to any corporation, means the Capital Stock
having the general voting power under ordinary circumstances to elect at least a
majority of the board of directors (irrespective of whether or not at the time
stock of any other class or classes shall have or might have voting power by
reason of the happening of any contingency).

"Wholly Owned Subsidiary" means a Subsidiary (other than an Unrestricted
Subsidiary) all the Capital Stock of which (other than directors' qualifying
shares) is owned by the Company or another Wholly Owned Subsidiary.

"Working Capital Credit Agreement" means the Line of Credit Note, dated as
of June 4, 1993, between the Company and The Bank of California, N.A. as
amended, refinanced, renewed or extended from time to time.

COVENANTS

The Indenture contains covenants including, among others, the following:

Limitation on Restricted Payments. Under the terms of the Indenture, so
long as any of the Senior Notes are outstanding, the Company shall not, and
shall not permit any Restricted Subsidiary to, directly or indirectly, (i)
declare or pay any dividend on or make any distribution or similar payment of
any sort in respect of its Capital Stock (including any payment in connection
with any merger or consolidation involving the Company) to the direct or
indirect holders of its Capital Stock (other than dividends or distributions
payable solely in its Non-Convertible Capital Stock or rights to acquire its
Non-Convertible Capital Stock and dividends or distributions payable solely to
the Company or a Restricted Subsidiary and other than pro rata dividends paid by
a Subsidiary with respect to a series or class of its Capital Stock the majority
of which is held by the Company or a Wholly Owned Subsidiary that is not a
Foreign Subsidiary), (ii) purchase, redeem, defease or otherwise acquire or
retire for value any Capital Stock of the Company or of any direct or indirect
parent of the Company, or, with respect to the Company, exercise any option to
exchange any Capital Stock that by its terms is exchangeable solely at the
option of the Company (other than into Capital Stock of the Company which is
neither Exchangeable Stock nor Redeemable Stock), (iii) purchase, repurchase,
redeem, defease or otherwise acquire or retire for value, prior to scheduled
maturity or scheduled repayment thereof or scheduled sinking fund payment
thereon, any Subordinated Indebtedness (other than the purchase, repur-

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chase or other acquisition of Subordinated Indebtedness purchased in
anticipation of satisfying a sinking fund obligation, principal installment or
final maturity, in each case due within one year of the date of acquisition) or
(iv) make any Investment, other than a Controlled Non-Subsidiary Investment, or
a payment described in clause (vi) of the second sentence under
"-- Covenants -- Transactions with Affiliates," in any Unrestricted Subsidiary
or any Affiliate of the Company other than a Restricted Subsidiary or a Person
which will become a Restricted Subsidiary as a result of any such Investment
(each such payment described in clauses (i)-(iv) of this paragraph, a
"Restricted Payment"), unless at the time of and after giving effect to the
proposed Restricted Payment: (1) no Default or Event of Default shall have
occurred and be continuing (or would result therefrom); (2) the Company would be
permitted to Incur an additional $1 of Indebtedness pursuant to the provisions
described in the first paragraph under "-- Limitation on Incurrence of
Indebtedness," and (3) the aggregate amount of all such Restricted Payments
subsequent to the Issue Date shall not exceed the sum of (A) 50% of aggregate
Consolidated Net Income accrued during the period (treated as one accounting
period) from January 1, 1994 to the end of the most recent fiscal quarter for
which financial statements are available (or if such Consolidated Net Income is
a deficit, minus 100% of such deficit), and minus 100% of the amount of any
write-downs, write-offs, other negative reevaluations and other negative
extraordinary charges not otherwise reflected in Consolidated Net Income during
such period; (B) if the Senior Notes are Investment Grade immediately following
the Restricted Payment in connection with which this calculation is made, an
additional 25% of Consolidated Net Income for any period of one or more
consecutive completed fiscal quarters ending with the last fiscal quarter
completed prior to the date of such Restricted Payment during which the Senior
Notes were Investment Grade for the entire period; (C) the aggregate Net Cash
Proceeds received by the Company after January 1, 1994 from the sale of Capital
Stock (other than Redeemable Stock or Exchangeable Stock) of the Company to any
person other than the Company, any of its Subsidiaries or an employee stock
ownership plan; (D) the amount by which the principal amount of, and any accrued
interest on, Indebtedness of the Company or its Restricted Subsidiaries is
reduced on the Company's Consolidated balance sheet upon the conversion or
exchange (other than by a Subsidiary) subsequent to the Issue Date of any
Indebtedness of the Company or any Restricted Subsidiary converted or exchanged
for Capital Stock (other than Redeemable Stock or Exchangeable Stock) of the
Company (less the amount of any cash, or the value of any other property,
distributed by the Company or any Restricted Subsidiary upon such conversion or
exchange); (E) an amount equal to the net reduction in Investments in
Unrestricted Subsidiaries resulting from payments of interest on Indebtedness,
dividends, repayments of loans or advances, or other transfers of assets, in
each case to the Company or any Restricted Subsidiary from Unrestricted
Subsidiaries, or from redesignations of Unrestricted Subsidiaries as Restricted
Subsidiaries (valued in each case as provided in the definition of
"Investments"), not to exceed in the case of any Unrestricted Subsidiary the
amount of Investments previously made by the Company or any Restricted
Subsidiary in such Unrestricted Subsidiary; and (F) $5 million.

The failure to satisfy the conditions set forth in clauses (2) and (3) of
the first paragraph under "-- Limitation on Restricted Payments" shall not
prohibit any of the following as long as the condition set forth in clause (1)
of such paragraph is satisfied (except as set forth below): (i) dividends paid
within 60 days after the date of declaration thereof if at such date of
declaration such dividend would have complied with the provisions described in
the first paragraph under "-- Limitation on Restricted Payments"; provided,
however, that following the occurrence of Public Market, notwithstanding clause
(1) of the immediately preceding paragraph, the occurrence or existence of a
Default at the time of payment shall not prohibit the payment of such dividends;
(ii) any purchase, redemption, defeasance, or other acquisition or retirement
for value of Capital Stock or Subordinated Indebtedness of the Company made by
exchange for, or out of the proceeds of the substantially concurrent sale of,
Capital Stock of the Company (other than Redeemable Stock or Exchangeable Stock
and other than stock issued or sold to a Subsidiary or to an employee stock
ownership plan), provided, however, that notwithstanding clause (1) of the first
paragraph under "-- Limitation on Restricted Payments", the occurrence or
existence of a Default or Event of Default shall not prohibit, for purposes of
this Section, the making of such purchase, redemption, defeasance or other
acquisition or retirement, and provided, further, such purchase, redemption,
defeasance or other acquisition or retirement shall not be included in the
calculation of Restricted Payments made for purposes of clause (3) of the first
paragraph under "-- Limitation on Restricted Payments," and provided, further,
that the Net Cash Proceeds

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from such sale shall be excluded from sub-clause (C) of clause (3) of the first
paragraph under "-- Limitation on Restricted Payments"; (iii) any purchase,
redemption, defeasance or other acquisition or retirement for value of
Subordinated Indebtedness of the Company made by exchange for, or out of the
proceeds of the substantially concurrent Incurrence of for cash (other than to a
Subsidiary), new Indebtedness of the Company, provided, however, that (A) such
new Indebtedness shall be contractually subordinated in right of payment to the
Securities at least to the same extent as the Indebtedness being so redeemed,
repurchased, defeased, acquired or retired, (B) if the Indebtedness being
purchased, redeemed, defeased or acquired or retired for value is Non-Recourse
Debt, such new Indebtedness shall be Non-Recourse Debt, (C) such new
Indebtedness has a Stated Maturity either (1) no earlier than the Stated
Maturity of the Indebtedness redeemed, repurchased, defeased, acquired or
retired or (2) after the Stated Maturity of the Senior Notes and (D) such
Indebtedness has an Average Life equal to or greater than the Average Life of
the Indebtedness redeemed, repurchased, defeased, acquired or retired, and
provided, further, that such purchase, redemption, defeasance or other
acquisition or retirement shall not be included in the calculation of Restricted
Payments made for purposes of clause (3) of the first paragraph under
"-- Limitation on Restricted Payments"; (iv) any purchase, redemption,
defeasance or other acquisition or retirement for value of Subordinated
Indebtedness upon a Change of Control or an Asset Sale to the extent required by
the indenture or other agreement pursuant to which such Subordinated
Indebtedness was issued, but only if the Company (A) in the case of a Change of
Control, has made an offer to repurchase the Senior Notes as described under
"-- Covenants -- Change of Control" or (B) in the case of an Asset Sale, has
applied the Net Available Cash from such Asset Sale in accordance with the
provisions described under "-- Covenants -- Sales of Assets"; and (v) dividends
paid to Parent in any fiscal year not in excess of the lesser of (A) the sum of
(1) $300,000 plus (2) 10% of the Company's paid-in capital paid by Parent and
(B) $1,050,000.

Limitation on Incurrence of Indebtedness. Under the terms of the
Indenture, the Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, Incur any Indebtedness, except that the Company may
Incur Indebtedness if, after giving effect thereto, the Consolidated Coverage
Ratio would be greater than 2:1.

The foregoing provision will not limit the ability of the Company or any
Restricted Subsidiary to Incur the following Indebtedness: (i) Refinancing
Indebtedness (except with respect to Indebtedness referred to in clause (ii),
(iii) or (iv) below); (ii) in addition to any Indebtedness otherwise permitted
to be Incurred hereunder, Indebtedness of the Company at any one time
outstanding in an aggregate principal amount not to exceed $5,000,000 and
provided that the proceeds of such Indebtedness shall not be used for the
purpose of making any Restricted Payments described in clause (i) or (ii) under
"-- Limitation on Restricted Payments"; (iii) Indebtedness of the Company which
is owed to and held by a Wholly Owned Subsidiary and Indebtedness of a Wholly
Owned Subsidiary which is owed to and held by the Company or a Wholly Owned
Subsidiary; provided, however, that any subsequent issuance or transfer of any
Capital Stock which results in any such Wholly Owned Subsidiary ceasing to be a
Wholly Owned Subsidiary or any transfer of such Indebtedness (other than to the
Company or a Wholly Owned Subsidiary) shall be deemed, in each case, to
constitute the Incurrence of such Indebtedness by the Company or by a Wholly
Owned Subsidiary, as the case may be; (iv) Indebtedness of the Company under the
Bank Credit Agreement which, when taken together with the aggregate amount of
Indebtedness Incurred pursuant to clause (viii) of this paragraph, is not in
excess of $50,000,000, and Indebtedness of the Company under the Working Capital
Credit Agreement not in excess of $5,000,000; (v) Acquired Indebtedness;
provided, however, that the Company would have been able to Incur such
Indebtedness at the time of the Incurrence thereof pursuant to the immediately
preceding paragraph; (vi) Indebtedness of the Company or a Restricted Subsidiary
outstanding on the Issue Date (other than Indebtedness referred to in clause
(iv) above and Indebtedness being repaid or retired with the proceeds of the
Offering); (vii) Non-Recourse Debt of a Restricted Subsidiary (other than a
Restricted Subsidiary existing on the Issue Date), the proceeds of which are
used to acquire, develop, improve or construct a new Facility of such Restricted
Subsidiary; (viii) guarantees by the Company of Indebtedness of Restricted
Subsidiaries which, but for such guarantees, would be permitted to be Incurred
pursuant to clause (vii) of this paragraph, provided that the aggregate
principal amount of Indebtedness Incurred pursuant to this clause (viii), when
taken together with outstanding Indebtedness Incurred under the Bank Credit
Agreement pursuant to clause (iv) of this paragraph, is not in excess of
$50,000,000; and (ix) Related Asset

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Indebtedness, provided that at the time of the Incurrence thereof, giving pro
forma effect to the Incurrence thereof, Moody's and S&P shall have affirmed
their respective ratings of the Senior Notes in effect prior to the Incurrence
of such Related Asset Indebtedness.

Notwithstanding the provisions of this covenant described in the first two
paragraphs above, the Indenture provides that the Company shall not Incur any
Indebtedness if the proceeds thereof are used, directly or indirectly, to repay,
prepay, redeem, defease, retire, refund or refinance any Subordinated
Indebtedness unless such repayment, prepayment, redemption, defeasance,
retirement, refunding or refinancing is not prohibited under "-- Limitation on
Restricted Payments" or unless such Indebtedness shall be contractually
subordinated to the Senior Notes at least to the same extent as such
Subordinated Indebtedness.

Limitation on Payment Restrictions Affecting Subsidiaries. Under the terms
of the Indenture, the Company shall not, and shall not permit any Subsidiary to,
create or otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary to (i)
pay dividends to or make any other distributions on its Capital Stock, or pay
any Indebtedness or other obligations owed to the Company or any other
Restricted Subsidiary, (ii) make any Investments in the Company or any other
Restricted Subsidiary or (iii) transfer any of its property or assets to the
Company or any other Restricted Subsidiary; provided, however, that the
foregoing shall not apply to (a) any encumbrance or restriction existing
pursuant to the Indenture or any other agreement or instrument as in effect or
entered into on the Issue Date; (b) any encumbrance or restriction with respect
to a Subsidiary pursuant to an agreement relating to any Acquired Indebtedness;
provided, however, that such encumbrance or restriction was not Incurred in
connection with or in contemplation of such Subsidiary becoming a Subsidiary;
(c) any encumbrance or restriction pursuant to an agreement effecting a
refinancing of Indebtedness referred to in clause (a) or (b) above or contained
in any amendment or modification with respect to such Indebtedness; provided,
however, that the encumbrances and restrictions contained in any such agreement,
amendment or modification are no less favorable in any material respect with
respect to the matters referred to in clauses (i), (ii) and (iii) above than the
encumbrances and restrictions with respect to the Indebtedness being refinanced,
amended or modified; (d) in the case of clause (iii) above, customary
non-assignment provisions of (A) any leases governing a leasehold interest, (B)
any supply, license or other agreement entered into in the ordinary course of
business of the Company or any Subsidiary or (C) any security agreement relating
to a Lien permitted by Section 3.7(l), that, in the reasonable determination of
the President or Chief Financial Officer of the Company (x) is required in order
to obtain such financing and (v) is customary for such financings; (e) any
restrictions with respect to a Subsidiary imposed pursuant to an agreement
entered into for the sale or disposition of all or substantially all of the
Capital Stock or assets of such Subsidiary pending the closing of such sale or
disposition; (f) any encumbrance imposed pursuant to the terms of Indebtedness
incurred pursuant to clause (vii) of the proviso to the covenant described under
"-- Limitation on Incurrence of Indebtedness" above, provided that such
encumbrance in the written opinion of the President or Chief Financial Officer
of the Company, (x) is required in order to obtain such financing, (y) is
customary for such financings and (z) applies only to the assets of or revenues
of the applicable Facility or (g) any encumbrance or restriction existing by
reason of applicable law.

Limitation on Sale/Leaseback Transactions. Under the terms of the
Indenture, the Company shall not, and shall not permit any Restricted Subsidiary
to, enter into any Sale/Leaseback Transaction unless (i) the Company or such
Subsidiary would be entitled to create a Lien on such property securing
Indebtedness in an amount equal to the Attributable Debt with respect to such
transaction without equally and ratably securing the Securities pursuant to the
covenant entitled "Limitation on Liens" or (ii) the net proceeds of such sale
are at least equal to the fair value (as determined by the Board of Directors)
of such property and the Company or such Subsidiary shall apply or cause to be
applied an amount in cash equal to the net proceeds of such sale to the
retirement, within 30 days of the effective date of any such arrangement, of
Senior Indebtedness or Indebtedness of a Restricted Subsidiary; provided,
however, that in addition to the transactions permitted pursuant to the
foregoing clauses (i) and (ii), the Company or any Restricted Subsidiary may
enter into a Sale/Leaseback Transaction as long as the sum of (x) the
Attributable Debt with respect to such Sale/Leaseback Transaction and all other
Sale/Leaseback Transactions entered into pursuant to this proviso, plus (y) the
amount of outstanding Indebtedness secured by Liens Incurred pursuant to the
final proviso to

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the covenant described under "-- Limitation on Liens" below, does not exceed 10%
of Consolidated Net Tangible Assets as determined based on the consolidated
balance sheet of the Company as of the end of the most recent fiscal quarter for
which financial statements are available; and provided, further, that a
Restricted Subsidiary that is not a Restricted Subsidiary on the Issue Date may
enter into a Sale/Leaseback Transaction with respect to property owned by such
Restricted Subsidiary, the proceeds of which are used to acquire, develop,
construct, or repay (within 365 days of the commencement of commercial operation
of such Facility) Indebtedness Incurred to acquire, develop or construct, a new
Facility of such Restricted Subsidiary, as long as neither the Company nor any
other Restricted Subsidiary shall have any obligation or liability in connection
therewith.

Limitation on Liens. Under the terms of the Indenture, the Company shall
not, and shall not permit any Restricted Subsidiary to, directly or indirectly,
incur or permit to exist any Lien of any nature whatsoever on any of its
properties (including, without limitation, Capital Stock), whether owned at the
date of such Indenture or thereafter acquired, other than (a) pledges or
deposits made by such Person under workers' compensation, unemployment insurance
laws or similar legislation, or good faith deposits in connection with bids,
tenders, contracts (other than for payment of Indebtedness) or leases to which
such Person is a party, or deposits to secure statutory or regulatory
obligations of such Person or deposits of cash of United States Government bonds
to secure surety, appeal or performance bonds to which such Person is a party,
or deposits as security for contested taxes or import duties or for the payment
of rent, in each case Incurred in the ordinary course of business; (b) Liens
imposed by law such as carriers', warehousemen's and mechanics' Liens, in each
case, arising in the ordinary course of business and with respect to amounts not
yet due or being contested in good faith by appropriate legal proceedings
promptly instituted and diligently conducted and for which a reserve or other
appropriate provision, if any, as shall be required in conformity with GAAP
shall have been made; or other Liens arising out of judgments or awards against
such Person with respect to which such Person shall then be diligently
prosecuting appeal or other proceedings for review; (c) Liens for property taxes
not yet subject to penalties for non-payment or which are being contested in
good faith and by appropriate legal proceedings promptly instituted and
diligently conducted and for which a reserve or other appropriate provision, if
any, as shall be required in conformity with GAAP shall have been made; (d)
Liens in favor of issuers or surety bonds or letters of credit issued pursuant
to the request of and for the account of such Person in the ordinary course of
its business; provided, however, that such letters of credit may not constitute
Indebtedness; (e) minor survey exceptions, minor encumbrances, easements or
reservations of, or rights of others for, rights of way, sewers, electric lines,
telegraph and telephone lines and other similar purposes, or zoning or other
restrictions as to the use of real properties or liens incidental to the conduct
of the business of such Person or to the ownership of its properties which were
not Incurred in connection with Indebtedness or other extensions of credit and
which do not in the aggregate materially adversely affect the value of said
properties or materially impair their use in the operation of the business of
such Person; (f) Liens securing Indebtedness Incurred to finance the
construction or purchase of, or repairs, improvements or additions to, property;
provided, however, that the Lien may not extend to any other property owned by
the Company or any Restricted Subsidiary at the time the Lien is incurred, and
the Indebtedness secured by the Lien may not be issued more than 270 days after
the later of the acquisition, completion of construction, repair, improvement,
addition or commencement of full operation of the property subject to the Lien;
(g) Liens existing on the Issue Date (other than Liens relating to Indebtedness
or other obligations being repaid or liens that are otherwise extinguished with
the proceeds of the Offering); (h) Liens on property or shares of stock of a
Person at the time such Person becomes a Subsidiary; provided, however, that any
such lien may not extend to any other property owned by the Company or any
Restricted Subsidiary; (i) Liens on property at the time the Company or a
Subsidiary acquires the property, including any acquisition by means of a merger
or consolidation with or into the Company or a Subsidiary; provided, however,
that such Liens are not incurred in connection with, or in contemplation of,
such merger or consolidation; and provided, further, that the Lien may not
extend to any other property owned by the Company or any Restricted Subsidiary;
(j) Liens securing Indebtedness or other obligations of a Subsidiary owing to
the Company or a Wholly Owned Subsidiary; (k) Liens incurred by a Person other
than the Company or any Subsidiary on assets that are the subject of a
Capitalized Lease Obligation to which the Company or a Subsidiary is a party;
provided, however, that any such Lien may not secure Indebtedness of the Company
or any Subsidiary (except by virtue of clause (ix) of

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the definition of "Indebtedness") and may not extend to any other property owned
by the Company or any Restricted Subsidiary; (l) Liens Incurred by a Restricted
Subsidiary on its assets to secure Non-Recourse Debt Incurred pursuant to clause
(vii) of the second paragraph under "-- Limitation on Incurrence of
Indebtedness" above, provided that such Lien (A) is incurred at the time of the
initial Incurrence of such Indebtedness and (b) does not extend to any assets or
property of the Company or any other Restricted Subsidiary; (m) Liens not in
respect of Indebtedness arising from Uniform Commercial Code financing
statements for informational purposes with respect to leases Incurred in the
ordinary course of business and not otherwise prohibited by this Indenture; (n)
Liens not in respect of Indebtedness consisting of the interest of the lessor
under any lease Incurred in the ordinary course of business and not otherwise
prohibited by this Indenture; (o) Liens which constitute banker's liens, rights
of set-off or similar rights and remedies as to deposit accounts or other funds
maintained with any bank or other financial institution, whether arising by
operation of law or pursuant to contract; (p) 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 the foregoing clauses (f), (g),
(h) and (i), provided, however, that (x) such new Lien shall be limited to all
or part of the same property that secured the original Lien (plus improvements
on such property) and (y) the Indebtedness secured by such Lien at such time 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 such Indebtedness); and (q) Liens by which the Senior Notes are
secured equally and ratably with other Indebtedness of the Company pursuant to
the provisions described under "-- Covenants -- Limitations on Liens", without
effectively providing that the Senior Notes shall be secured equally and ratably
with (or prior to) the obligations so secured for so long as such obligations
are so secured; provided, however, that the Company may incur other Liens to
secure Indebtedness as long as the sum of (x) the amount of outstanding
Indebtedness secured by Liens incurred pursuant to this proviso plus (y) the
Attributable Debt with respect to all outstanding leases in connection with
Sale/Leaseback Transactions entered into pursuant to the proviso under
"-- Limitation on Sale/Leaseback Transactions," does not exceed 10% of
Consolidated Net Tangible Assets as determined with respect to the Company as of
the end of the most recent fiscal quarter for which financial statements are
available.

Change of Control. Under the terms of the Indenture, in the event of a
Change of Control Triggering Event, the Company shall make an offer to purchase
(the "Change of Control Offer") the Senior Notes then outstanding at a purchase
price equal to 101% of the principal amount (excluding any premium) thereof plus
accrued and unpaid interest to the Change of Control Purchase Date (as defined
below) on the terms set forth in this provision. The date on which the Company
shall purchase the Senior Notes pursuant to this provision (the "Change of
Control Purchase Date") shall be no earlier than 30 days, nor later than 60
days, after the notice referred to below is mailed, unless a longer period shall
be required by law. The Company shall notify the Trustee in writing promptly
after the occurrence of any Change of Control Triggering Event of the Company's
obligation to offer to purchase all of the Senior Notes.

Notice of a Change of Control Offer shall be mailed by the Company to the
Holders of the Senior Notes at their last registered address (with a copy to the
Trustee and the Paying Agent) within thirty (30) days after a Change in Control
Triggering Event has occurred. The Change of Control Offer shall remain open
from the time of mailing until a date not more than five (5) Business Days
before the Change of Control Purchase Date. The notice shall contain all
instructions and materials necessary to enable such Holders to tender (in whole
or in part) the Senior Notes pursuant to the Change of Control Offer. The
notice, which shall govern the terms of the Change of Control Offer, shall
state: (a) that the Change of Control Offer is being made pursuant to the
Indenture; (b) the purchase price and the Change of Control Purchase Date; (c)
that any Senior Note not surrendered or accepted for payment will continue to
accrue interest; (d) that any Senior Note accepted for payment pursuant to the
Change of Control Offer shall cease to accrue interest after the Change of
Control Purchase Date; (e) that any Holder electing to have a Senior Note
purchased (in whole or in part) pursuant to a Change of Control Offer will be
required to surrender the Senior Note, with the form entitled "Option of Holder
to Elect Purchase" on the reverse of the Senior Note completed, to the Paying
Agent at the address specified in the notice (or otherwise make effective
delivery of the Senior Note pursuant to book-entry procedures and the related
rules of the applicable depositories) at least five (5) Business Days

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before the Change of Control Purchase Date; and (f) that any Holder will be
entitled to withdraw his or her election if the Paying Agent receives, not later
than three (3) Business Days prior to the Change of Control Purchase Date, a
telegram, telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of the Senior Note the Holder delivered for
purchase and a statement that such Holder is withdrawing his or her election to
have the Senior Note purchased.

On the Change of Control Purchase Date, the Company shall (i) accept for
payment the Senior Notes, or portions thereof, surrendered and properly tendered
and not withdrawn, pursuant to the Change of Control Offer, (ii) deposit with
the Paying Agent, no later than 11:00 a.m. eastern standard time, money, in
immediately available funds, sufficient to pay the purchase price of all the
Senior Notes or portions thereof so accepted and (iii) deliver to the Trustee,
no later than 11:00 a.m. eastern standard time, the Senior Notes so accepted
together with an Officers' Certificate stating that such Senior Notes have been
accepted for payment by the Company. The Paying Agent shall promptly mail or
deliver to Holders of Senior Notes so accepted payment in an amount equal to the
purchase price. Holders whose Securities are purchased only in part will be
issued new Senior Notes equal in principal amount to the unpurchased portion of
the Senior Notes surrendered.

Transactions with Affiliates. Under the terms of the Indenture, the
Company shall not, and shall not permit any Restricted Subsidiary to, directly
or indirectly, enter into, permit to exist, renew or extend any transaction or
series of transactions (including, without limitation, the sale, purchase,
exchange or lease of any assets or property or the rendering of any services)
with any Affiliate of the Company unless (i) the terms of such transaction or
series of transactions are (A) no less favorable to the Company or such
Restricted Subsidiary, as the case may be, than would be obtainable in a
comparable transaction or series of related transactions in arm's-length
dealings with an unrelated third party and (B) set forth in writing, if such
transaction or series of transactions involve aggregate payments or
consideration in excess of $1,000,000, and (ii) with respect to a transaction or
series of transactions involving the sale, purchase, lease or exchange of
property or assets having a value in excess of $5,000,000, such transaction or
series of transactions has been approved by a majority of the disinterested
members of the Board of Directors or, if there are no disinterested members of
the Board of Directors, the Board of Directors of the Company shall have
received a written opinion of a nationally recognized investment banking firm
stating that such transaction or series of transactions is fair to the Company
or such Restricted Subsidiary from a financial point of view. The foregoing
provisions do not prohibit (i) the payment of reasonable fees to directors of
the Company and its subsidiaries who are not employees of the Company or its
subsidiaries; (ii) any transaction between the Company and a Wholly Owned
Subsidiary or between Wholly Owned Subsidiaries otherwise permitted by the terms
of the Indenture; (iii) the payment of any Restricted Payment which is expressly
permitted to be paid pursuant to the second paragraph under
"-- Covenants -- Limitation on Restricted Payments"; (iv) any issuance of
securities or other reasonable payments, awards or grants, in cash or otherwise,
pursuant to, or the funding of, employment arrangements approved by the Board of
Directors; (v) the grant of stock options or similar rights to employees and
directors of the Company pursuant to plans approved by the Board of Directors;
(vi) loans or advances to employees in the ordinary course of business; (vii)
any repurchase, redemption or other retirement of Capital Stock of the Company
held by employees of the Company or any of its Subsidiaries upon death,
disability or termination of employment at a price not in excess of the fair
market value thereof approved by the Board of Directors; (viii) any transaction
between or among the Company and any Subsidiary in the ordinary course of
business and consistent with past practices of the Company and its Subsidiaries;
(ix) payments pursuant to Existing Agreements and payments of principal,
interest and commitment fees under the Bank Credit Agreement; and (x) any
agreement to do any of the foregoing. Any transaction which has been determined,
in the written opinion of an independent nationally recognized investment
banking firm, to be fair, from a financial point of view, to the Company or the
applicable Restricted Subsidiary shall be deemed to be in compliance with this
provision.

Sales of Assets. Under the terms of the Indenture, neither the Company nor
any Restricted Subsidiary shall consummate any Asset Sale unless (i) the Company
or such Restricted Subsidiary receives consideration at the time of such Asset
Sale at least equal to the fair market value, as determined in good faith by the
Board of Directors, of the shares or assets subject to such Asset Sale, (ii) at
least 60% of the consideration

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thereof received by the Company or such Restricted Subsidiary is in the form of
cash or cash equivalents which are promptly converted into cash by the Person
receiving such payment and (iii) an amount equal to 100% of the Net Available
Cash is applied by the Company (or such Subsidiary, as the case may be) as set
forth herein. Under the terms of the Indenture, the Company shall not permit any
Unrestricted Subsidiary to make any Asset Sale unless such Unrestricted
Subsidiary receives consideration at the time of such Asset Sale at least equal
to the fair market value of the shares or assets so disposed of as determined in
good faith by the Board of Directors.

Under the terms of the Indenture, within 365 days (such period being the
"Application Period") following the consummation of an Asset Sale, the Company
or such Restricted Subsidiary shall apply the Net Available Cash from such Asset
Sale as follows: (i) first, to the extent the Company or such Restricted
Subsidiary elects, to reinvest in Additional Assets (including by means of an
investment in Additional Assets by a Restricted Subsidiary with Net Available
Cash received by the Company or another Restricted Subsidiary); (ii) second, to
the extent of the balance of such Net Available Cash after application in
accordance with clause (i), and to the extent the Company or such Restricted
Subsidiary elects (or is required by the terms of any Senior Indebtedness or any
Indebtedness of such Restricted Subsidiary), to prepay, repay or purchase Senior
Indebtedness (other than Senior Notes) or Indebtedness (other than any Preferred
Stock) of a Restricted Subsidiary (in each case other than Indebtedness owed to
the Company or an Affiliate of the Company); (iii) third, to the extent of the
balance of such Net Available Cash after application in accordance with clauses
(i) and (ii), and to the extent the Company or such Restricted Subsidiary
elects, to purchase Senior Notes; and (iv) fourth, to the extent of the balance
of such Net Available Cash after application in accordance with clauses (i),
(ii) and (iii), to make an offer to purchase the Senior Notes at not less than
their principal amount plus accrued interest (if any) pursuant to and subject to
the conditions set forth in the Indenture; provided, however, that in connection
with any prepayment, repayment or purchase of Indebtedness pursuant to clause
(ii), (iii) or (iv) above, the Company or such Restricted Subsidiary shall
retire such Indebtedness and cause the related loan commitment (if any) to be
permanently reduced in an amount equal to the principal amount so prepaid,
repaid or purchased. To the extent that any Net Available Cash from any Asset
Sale remains after the application of such Net Available Cash in accordance with
this paragraph, the Company or such Restricted Subsidiary may utilize such
remaining Net Available Cash in any manner not otherwise prohibited by the
Indenture.

To the extent that any or all of the Net Available Cash of any Foreign
Asset Sale is prohibited or delayed by applicable local law from being
repatriated to the United States, the portion of such Net Available Cash so
affected shall not be required to be applied at the time provided above, but may
be retained by the applicable Restricted Subsidiary so long, but only so long,
as the applicable local law will not permit repatriation to the United States
(the Company hereby agreeing to promptly take or cause the applicable Restricted
Subsidiary to promptly take all actions required by the applicable local law to
permit such repatriation). Once such repatriation of any of such affected Net
Available Cash is permitted under the applicable local law, such repatriation
shall be immediately effected and such repatriated Net Available Cash will be
applied in the manner set forth in this provision as if such Asset Sale had
occurred on the date of such repatriation.

Notwithstanding the foregoing, to the extent that the Board of Directors
determines, in good faith, that repatriation of any or all of the Net Available
Cash of any Foreign Asset Sale would have a material adverse tax consequence to
the Company, the Net Available Cash so affected may be retained outside of the
United States by the applicable Restricted Subsidiary for so long as such
material adverse tax consequence would continue.

Under the Indenture, the Company shall not be required to make an offer to
purchase the Senior Notes if the Net Available Cash available from an Asset Sale
(after application of the proceeds as provided in clauses (i) and (ii) of the
second paragraph above) is less than $1,000,000 for any particular Asset Sale
(which lesser amounts shall not be carried forward for purposes of determining
whether an offer is required with respect to the Net Available Cash from any
subsequent Asset Sale).

Notwithstanding the foregoing, this provision shall not apply to, or
prevent any sale of assets, property, or Capital Stock of Subsidiaries to the
extent that the fair market value (as determined in good faith by the

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Board of Directors) of such asset, property or Capital Stock, together with the
fair market value of all other assets, property, or Capital Stock of
Subsidiaries sold, transferred or otherwise disposed of in Asset Sales during
the twelve month period preceding the date of such sale, does not exceed 5% of
Consolidated Net Tangible Assets as determined as of the end of the most recent
fiscal quarter for which financial statements are available (it being understood
that this provision shall only apply with respect to the fair market value of
such asset, property or Capital Stock in excess of 5% of consolidated Net
Tangible Assets), and no violation of this provision shall be deemed to have
occurred as a consequence thereof.

In the event of the transfer of substantially all (but not all) of the
property and assets of the Company as an entirety to a Person in a transaction
permitted under the covenant described under "-- Merger and Consolidation," the
Successor Corporation shall be deemed to have sold the properties and assets of
the Company not so transferred for purposes of this covenant, and shall comply
with the provisions of this covenant with respect to such deemed sale as if it
were an Asset Sale.

Limitation on the Issuance of Capital Stock and the Incurrence of
Indebtedness of Restricted Subsidiaries. Pursuant to the terms of the
Indenture, the Company shall not permit any Restricted Subsidiary, directly or
indirectly, to issue or sell, and shall not permit any Person other than the
Company or a Wholly Owned Subsidiary to own (except to the extent that any such
Person may own on the Issue Date), any shares of such Restricted Subsidiary's
Capital Stock (including options, warrants or other rights to purchase shares of
Capital Stock) except, to the extent otherwise permitted by the Indenture, (i)
to the Company or another Restricted Subsidiary that is a Wholly Owned
Subsidiary of the Company, or (ii) if, immediately after giving effect to such
issuance and sale, such Restricted Subsidiary would no longer constitute a
Restricted Subsidiary for purposes of the Indenture; provided, however, that a
Restricted Subsidiary that has an interest in a Facility may sell shares of
Non-Convertible Stock that is not Preferred Stock if, after giving effect to
such sale, the Company or a Wholly Owned Subsidiary continues to hold at least a
majority of each class of Capital Stock of such Restricted Subsidiary. The
Company shall not permit any Restricted Subsidiary, directly or indirectly, to
Incur Indebtedness other than pursuant to the second paragraph under
"-- Limitation on Incurrence of Indebtedness."

Limitation on Changes in the Nature of the Business. The Indenture
provides that the Company and its Subsidiaries shall engage only in the business
of acquiring, constructing, managing, developing, improving, owning and
operating Facilities, as well as any other activities reasonably related to the
foregoing activities (including acquiring and holding reserves), including but
not limited to investing in Facilities; provided that up to 10% of the Company's
Consolidated total assets may be used in Unrelated Businesses without
constituting a violation of this covenant. In addition, the Company will, and
will cause its Subsidiaries, to conduct their respective businesses in a manner
so as to maintain the exemption of the Company and its Subsidiaries from
treatment as a public utility holding company under PUHCA or an electric utility
or public utility under any federal, state or local law; provided, however, to
the extent that any such law is amended following the Issue Date in such a
manner that would (absent application of this proviso) make compliance with this
paragraph result in a material adverse effect on the Company's results of
operations or financial condition, then the Company shall not be required to
comply with this paragraph, but only to the extent of actions or failures to act
that would (absent application of this proviso) constitute violations of this
Covenant solely as a result of such amendment.

Limitation on Subsidiary Investments. The Indenture provides that the
Company will not permit any Subsidiary with an interest in a Facility to make
any investment in or merge with any other person with an interest in a power
generation facility or, except in connection with the acquisition of Related
Assets by such Subsidiary, in an Unrelated Business.

Merger and Consolidation. Under the terms of each of the Indentures, the
Company shall not, in a single transaction or through a series of related
transactions, consolidate with or merge with or into any other corporation or
sell, assign, convey, transfer or lease or otherwise dispose of all or
substantially all of its properties and assets as an entirety to any Person or
group of affiliated Persons unless: (i) either (A) the Company shall be the
continuing Person, or (B) the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or to which the properties and
assets of the Company as

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an entirety are transferred (the "Successor Corporation") shall be a corporation
organized and existing under the laws of the United States or any State thereof
or the District of Columbia and shall expressly assume, by an indenture
supplemental to the Indenture, executed and delivered to the Trustee, in form
and substance reasonably satisfactory to the Trustee, all the obligations of the
Company under the Indenture and the Senior Notes; (ii) immediately before and
immediately after giving effect to such transaction on a pro forma basis (and
treating any Indebtedness which becomes an obligation of the Company (or the
Successor Corporation if the Company is not the continuing obligor under the
Indenture) or any Restricted Subsidiary as a result of such transaction as
having been Incurred by such Person at the time of such transaction), no Default
shall have occurred and be continuing; (iii) the Company shall have delivered,
or caused to be delivered, to the Trustee an Officers' Certificate and, as to
legal matters, an Opinion of Counsel, each in form and substance reasonably
satisfactory to the Trustee, each stating that such consolidation, merger or
transfer and such supplemental indenture comply with the Indenture and that all
conditions precedent herein provided for relating to such transaction have been
complied with; (iv) immediately after giving effect to such transaction on a pro
forma basis (and treating any Indebtedness which becomes an obligation of the
Company (or the Successor Corporation if the Company is not the continuing
obligor under the Indenture) or a Restricted Subsidiary in connection with or as
a result of such transaction as having been Incurred by such Person at the time
of such transaction), the Company (or the Successor Corporation if the Company
is not the continuing obligor under the Indenture) shall have a Consolidated Net
Worth in an amount which is not less than the Consolidated Net Worth of the
Company immediately prior to such transaction; and (v) immediately after giving
effect to such transaction on a pro forma basis (and treating any Indebtedness
which becomes an obligation of the Company (or the Successor Corporation if the
Company is not the continuing obligor under the Indenture) or a Restricted
Subsidiary in connection with or as a result of such transaction as having been
Incurred by such Person at the time of such transaction), the Consolidated
Coverage Ratio of the Company (or the Successor Corporation if the Company is
not the continuing obligor under the Indenture) is at least 1.10:1, or, if less,
equal to the Consolidated Coverage Ratio of the Company immediately prior to
such transaction; provided that, if the Consolidated Coverage Ratio of the
Company before giving effect to such transaction is within the range set forth
in column (A) below, then the pro forma Consolidated Coverage Ratio of the
Company (or the Successor Corporation if the Company is not the continuing
obligor under the Indenture) shall be at least equal to the lesser of (1) the
ratio determined by multiplying the percentage set forth in column (B) below by
the Consolidated Coverage Ratio of the Company prior to such transaction and (2)
the ratio set forth in column (C) below:

Notwithstanding the foregoing clauses (ii), (iv) and (v), any Restricted
Subsidiary (other than a Subsidiary having an interest in a Facility) may
consolidate with, merge into or transfer all or part of its properties and
assets to the Company or any Wholly Owned Subsidiary or Wholly Owned
Subsidiaries (other than a Subsidiary or Subsidiaries which have an interest in
a Facility) and no violation of this provision will be deemed to have occurred
as a consequence thereof, as long as the requirements of clauses (i) and (iii)
are satisfied in connection therewith.

Upon any such assumption by the Successor Corporation, except in the case
of a lease, the Successor Corporation shall succeed to and be substituted for
the Company under the Indenture and the Senior Notes and the Company shall
thereupon be released from all obligations under the Indenture and under the
Senior Notes and the Company as the predecessor corporation may thereupon or at
any time thereafter be dissolved, wound up or liquidated. The Successor
Corporation thereupon may cause to be signed, and may issue either in its own
name or in the name of the Company, all or any of the Senior Notes issuable
under the Indenture which theretofore shall not have been signed by the Company
and delivered to the Trustee; and, upon the order of the Successor Corporation
instead of the Company and subject to all the terms, conditions and

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limitations prescribed in the Indenture, the Trustee shall authenticate and
shall deliver any Senior Notes which the Successor Corporation thereafter shall
cause to be signed and delivered to the Trustee for that purpose. All the Senior
Notes so issued shall in all respects have the same legal rank and benefit under
the Indenture as the Senior Notes theretofore or thereafter issued in accordance
with the terms of the Indenture as though all such Senior Notes had been issued
at the date of the execution of the Indenture.

In the case of any such consolidation, merger or transfer, such changes in
form (but not in substance) may be made in the Senior Notes thereafter to be
issued as may be appropriate.

EVENTS OF DEFAULT

"Events of Default" are defined in the Indenture as (a) default for 30 days
in payment of any interest installment due and payable on the Senior Notes, (b)
default in payment of the principal when due on any Senior Note, or failure to
redeem or purchase Senior Notes when required pursuant to the Indenture or the
Senior Notes, (c) default in performance of any other covenants or agreements in
the Indenture or in the Senior Notes for 30 days after written notice to the
Company by the Trustee or to the Company and the Trustee by the holders of at
least 25% in principal amount of the Senior Notes then outstanding, (d) there
shall have occurred either (i) a default by the Company or any Subsidiary under
any instrument or instruments under which there is or may be secured or
evidenced any Indebtedness of the Company or any Subsidiary of the Company
(other than the Senior Notes) having an outstanding principal amount of
$2,000,000 (or its foreign currency equivalent) or more individually or
$5,000,000 (or its foreign currency equivalent) or more in the aggregate that
has caused the holders thereof to declare such Indebtedness to be due and
payable prior to its Stated Maturity or (ii) a default by the Company or any
Subsidiary in the payment when due of any portion of the principal under any
such instrument, and such unpaid portion exceeds $2,000,000 (or its foreign
currency equivalent) individually or $5,000,000 (or its foreign currency
equivalent) in the aggregate and is not paid, or such default is not cured or
waived, within any grace period applicable thereto, unless such Indebtedness is
discharged within 20 days of the Company or a Restricted Subsidiary becoming
aware of such default; provided, however, that the foregoing shall not apply to
any default on Non-Recourse Indebtedness; (e) any final judgment or order (not
covered by insurance) for the payment of money shall be rendered against the
Company or any Significant Subsidiary in an amount in excess of $2,000,000 (or
its foreign currency equivalent) individually or $5,000,000 (or its foreign
currency equivalent) in the aggregate for all such final judgments or orders
against all such Persons (treating any deductibles, self-insurance or retention
as not so covered) and shall not be discharged, and there shall be any period of
30 consecutive days following entry of the final judgment or order in excess of
$2,000,000 (or its foreign currency equivalent) individually or that causes the
aggregate amount for all such final judgments or orders outstanding against all
such Persons to exceed $5,000,000 (or its foreign currency equivalent) during
which a stay of enforcement of such final judgment or order, by reason of a
pending appeal or otherwise, shall not be in effect; and (f) certain events of
bankruptcy, insolvency and reorganization of the Company.

If any Event of Default (other than an Event of Default described in clause
(f) with respect to the Company) occurs and is continuing, the Indenture
provides that the Trustee by notice to the Company, or the Holders of at least
25% in principal amount of the Senior Notes by notice to the Company and the
Trustee, may declare the principal amount of the Senior Notes and any accrued
and unpaid interest to be due and payable immediately. If an Event of Default
described in clause (f) with respect to the Company occurs, the principal of and
interest on all the Senior Notes shall ipso facto become and be immediately due
and payable without any declaration or other act on the part of the Trustee or
any Holders of Senior Notes. The Holders of a majority in principal amount of
the Senior Notes by notice to the Trustee may rescind any such declaration and
its consequences if the rescission would not conflict with any judgment or
decree and if all existing Events of Default have been cured or waived other
than the non-payment of principal of or interest on the Senior Notes which shall
have become due by such declaration.

The Company must file annually with the Trustee a certificate describing
any Default by the Company in the performance of any conditions or covenants
that has occurred under the Indenture and its status. The Company must give the
Trustee written notice within 30 days of any Default under the Indenture that
could mature into an Event of Default described in clause (c), (d), (e) or (f)
of the second preceding paragraph.

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The Trustee is entitled, 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 Holders of the Senior 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 Holders of a majority in principal amount of the Senior
Notes issued under the Indenture 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; however, the Trustee may refuse to
follow any such direction that conflicts with law or the Indenture, is unduly
prejudicial to the rights of other Holders of the Senior Notes, or would involve
the Trustee in personal liability.

The Indenture provides that while the Trustee generally must mail notice of
a Default or Event of Default to the holders of the Senior Notes within 90 days
of occurrence, the Trustee may withhold notice to the Holders of the Senior
Notes of any Default or Event of Default (except in payment on the Senior Notes)
if the Trustee in good faith determines that the withholding of such notice is
in the interest of the Holders of the Senior Notes.

MODIFICATION OF THE INDENTURE

Under the terms of the Indenture, the Company and the Trustee may, with the
consent of the Holders of a majority in principal amount of the outstanding
Senior Notes amend or supplement the Indenture or the Senior Notes except that
no amendment or supplement may, without the consent of each affected Holder, (i)
reduce the principal of or change the Stated Maturity of any Senior Note, (ii)
reduce the rate of or change the time of payment of interest on any Senior Note,
(iii) change the currency of payment of the Senior Notes, (iv) reduce the
premium payable upon the redemption of any Senior Note, or change the time at
which any such Senior Note may or shall be redeemed, (v) reduce the amount of
Senior Notes, the holders of which must consent to an amendment or supplement or
(vi) change the provisions of the Indenture relating to waiver of past defaults,
rights of Holders of the Senior Notes to receive payments or the provisions
relating to amendments of the Indenture that require the consent of Holders of
each affected Senior Note.

ACTIONS BY NOTEHOLDERS

Under the terms of the Indenture, a Holder of Senior Notes may not pursue
any remedy with respect to the Indenture or the Senior Notes (except actions for
payment of overdue principal or interest), unless (i) the Holder has given
notice to the Trustee of a continuing Event of Default, (ii) Holders of at least
25% in principal amount of the Senior Notes have made a written request to the
Trustee to pursue such remedy, (iii) such Holder or Holders have offered the
Trustee security or indemnity reasonably satisfactory to it against any loss,
liability or expense, (iv) the Trustee has not complied with such request within
60 days of such request and offer and (v) the Holders of a majority in principal
amount of the Senior Notes have not given the Trustee an inconsistent direction
during such 60-day period.

DEFEASANCE, DISCHARGE AND TERMINATION

Defeasance and Discharge. The Indenture provides that the Company will be
discharged from any and all obligations in respect of the Senior Notes, and the
provisions of the Indenture will no longer be in effect with respect to such
Senior Notes (except for, among other matters, certain obligations to register
the transfer or exchange of such Senior Notes, to replace stolen, lost or
mutilated Senior Notes, to maintain paying agencies and to hold monies for
payment in trust, and the rights of holders to receive payments of principal and
interest thereon), on the 123rd day after the date of the deposit with the
Trustee, in trust, of money or U.S. Government Obligations that, through the
payment of interest and principal in respect thereof in accordance with their
terms, will provide money, or a combination thereof, in an amount sufficient to
pay the principal of and interest on such Senior Notes, when due in accordance
with the terms of the Indenture and such Senior Notes. Such a trust may only be
established if, among other things, (i) the Company has delivered to the Trustee
either (a) an Opinion of Counsel (who may not be employed by the Company) to the
effect that Holders will not recognize income, gain or loss for federal income
tax purposes as a result of such deposit, defeasance and discharge and will be
subject to federal income tax on the same amount and in the

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same manner and at the same times as would have been the case if such deposit,
defeasance and discharge had not occurred, which Opinion of Counsel must refer
to and be based upon a ruling of the Internal Revenue Service or a change in
applicable federal income tax law occurring after the date of the Indenture or
(b) a ruling of the Internal Revenue Service to such effect and (ii) no Default
under the Indenture shall have occurred and be continuing on the date of such
deposit or during the period ending on the 123rd day after such date of deposit
and such deposit shall not result in or constitute a Default or result in a
breach or violation of, or constitute a default under, any other agreement or
instrument to which the Company is a party or by which the Company is bound.

Defeasance of Certain Covenants and Certain Events of Default. The
Indenture further provides that the provisions of the Indenture will no longer
be in effect with respect to the provisions described in clauses (iv) (v) under
"-- Merger and Consolidation" and all the covenants described herein under
"-- Covenants," clause (c) under "-- Events of Default" with respect to such
covenants and clauses (iv) and (v) under "-- Merger and Consolidation," and
clauses (d) and (e) under "-- Events of Default" shall be deemed not to be
Events of Default under the Indenture, and the provisions described herein under
"-- Ranking" shall not apply, upon the deposit with the Trustee, in trust, of
money or U.S. Government Obligations that through the payment of interest and
principal in respect thereof in accordance with their terms will provide money
in an amount sufficient to pay the principal of and interest on the Senior Notes
issued thereunder when due in accordance with the terms of the Indenture. Such a
trust may only be established if, among other things, the provisions described
in clause (ii) of the immediately preceding paragraph have been satisfied and
the Company has delivered to the Trustee an Opinion of Counsel (who may not be
an employee of the Company) to the effect that the Holders will not recognize
income, gain or loss for federal income tax purposes as a result of such deposit
and defeasance of certain covenants and Events of Default and will be subject to
federal income tax on the same amount and in the same manner and at the same
times as would have been the case if such deposit and defeasance had not
occurred.

Defeasance and Certain Other Events of Default. In the event the Company
exercises its option to omit compliance with certain covenants and provisions of
the Indenture with respect to the Senior Notes, as described in the immediately
preceding paragraph and such Senior Notes are declared due and payable because
of the occurrence of an Event of Default that remains applicable, the amount of
money or U.S. Government Obligations on deposit with the Trustee will be
sufficient to pay principal of and interest on Senior Notes on the respective
dates on which such amounts are due but may not be sufficient to pay amounts due
on such Senior Notes, at the time of the acceleration resulting from such Event
of Default. However, the Company shall remain liable for such payments.

Termination of Company's Obligations in Certain Circumstances. The
Indenture further provides that the Company will be discharged from any and all
obligations in respect of the Senior Notes and the provisions of such Indenture
will no longer be in effect with respect to the Senior Notes (except to the
extent provided under "-- Defeasance and Discharge") if such Senior Notes mature
within one year or all of them are to be called for redemption within one year
under arrangements satisfactory to the Trustee for giving the notice of
redemption, and the Company deposits with the Trustee, in trust, money or U.S.
Government Obligations that, through the payment of interest and principal in
respect thereof in accordance with their terms, will provide money in an amount
sufficient to pay the principal of, premium, if any, and accrued interest on
such Senior Notes when due in accordance with the terms of the Indenture and
such Senior Notes. Such a trust may only be established if, among other things,
(i) no Default under the Indenture shall have occurred and be continuing on the
date of such deposit, (ii) such deposit will not result in or constitute a
Default or result in a breach or violation of, or constitute a Default under,
any other agreement or instrument to which the Company is a party or by which it
is bound and (iii) the Company has delivered to the Trustee an Opinion of
Counsel stating that such conditions have been complied with. Pursuant to this
provision, the Company is not required to deliver an Opinion of Counsel to the
effect that Holders will not recognize income, gain or loss for U.S. federal
income tax purposes as a result of such deposit and termination, and there is no
assurance that Holders would not recognize income, gain or loss for U.S. federal
income tax purposes as a result thereof or that Holders would be subject to U.S.
federal income tax on the same amount and in the same manner and at the same
times as would have been the case if such deposit and termination had not
occurred.

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UNCLAIMED MONEY

Under the terms of the Indenture, subject to any applicable abandoned
property law, the Trustee will pay to the Company upon request any money held by
it for the payment of principal or interest that remains unclaimed for two
years. After payment to the Company, Holders of Senior Notes entitled to such
money must look to the Company for payment as general creditors.

CONCERNING THE TRUSTEE AND PAYING AGENT

Fleet National Bank acts as Trustee under the Indenture and will initially
be Paying Agent and Registrar for the Senior Notes. The Company may have in the
future other relationships with such bank. Notices to the Trustee, Paying Agent
and Registrar under the Indenture should be directed to Fleet National Bank, 777
Main Street, Hartford, Connecticut 06115, Attention: Corporate Trust Department.

GOVERNING LAW

Under the terms of the Indenture, the laws of the State of New York govern
the Indenture and the Senior Notes.

BOOK ENTRY; DELIVERY AND FORM

The Old Notes were and the New Notes will be issued in fully registered
form without interest coupons. No Senior Notes will be issuable in bearer form.
Old Notes sold in reliance on Rule 144A are represented by a single, permanent
global Note in definitive, fully registered form without interest coupons (the
"Restricted Global Note"), which was deposited with the Trustee as custodian for
DTC and registered in the name of a nominee of DTC.

Old Notes sold in offshore transactions in reliance on Regulation S were
originally represented by a single, permanent global Note, in definitive, fully
registered form without interest coupons (the "Regulation S Global Note"), which
was deposited with the Trustee as custodian for DTC and registered in the name
of a nominee of DTC for the accounts of Euroclear and Cedel. Old Notes
originally purchased by or transferred to Institutional Accredited Investors who
were not qualified institutional buyers ("Non-Global Purchasers") were issued in
registered form without coupons ("Certificated Notes").

THE GLOBAL NOTES

The Regulation S Global Note and the Restricted Global Note (each a "Global
Note" and together the "Global Notes") will be credited by DTC or its custodian
on its internal system the respective principal amount of the individual
beneficial interests represented by such Global Note to the accounts of persons
who have accounts with such depositary. Ownership of beneficial interests in a
Global Note will be limited to persons who have accounts with DTC
("participants") or persons who hold interests through participants. Ownership
of beneficial interests in the Global Note 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 participants) and the records of
participants (with respect to interests of persons other than participants).
Qualified Institutional Buyers may hold their interests in the Global Note
directly through DTC if they are participants in such system, or indirectly
through organizations which are participants in such system.

Investors may hold their interests in the Regulation S Global Note directly
through Cedel or Euroclear, if they are participants in such system, or
indirectly through organizations that are participants in such systems.
Beginning 40 days after the later of the commencement of this Offering and the
closing date (but not earlier), investors may also hold such interests through
organizations other than Cedel or Euroclear that are participants in the DTC
system. Cedel and Euroclear will hold interests in the Regulation S Global Note
on behalf of their participants through DTC.

So long as DTC, or its nominee, is the registered owner or holder of a
Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Senior Notes represented by such Global Note for all
purposes under the Indenture and the Senior Notes. No beneficial owner of an

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interest in a Global Note will be able to transfer that interest except in
accordance with DTC's applicable procedures, in addition to those provided for
under the Indenture and, if applicable, those of Euroclear and Cedel.

Payments of the principal of, and interest on, the Global Notes will be
made to DTC or its nominee, as the case may be, as the registered owner thereof.
Neither the Company, the Trustee nor any Paying Agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global Notes
or for maintaining, supervising or reviewing any records relating to such
beneficiary ownership interests.

The Company expects that DTC or its nominee, upon receipt of any payment of
principal or interest in respect of a Global Note will credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of such Global Note as shown on the records of
DTC or its nominee. The Company also expects that payments by participants to
owners of beneficial interests in such Global Note held through such
participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers registered
in the names of nominees for such customers. Such payments will be the
responsibility of such participants.

Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same-day funds. If a holder
requires physical delivery of a Certificated Note for any reason, including to
sell Senior Notes to persons in states which require such delivery of such
Senior Notes or to pledge such Senior Notes, such holder must transfer its
interest in the Global Note in accordance with the normal procedures of DTC and
the procedures set forth in the Indenture. Transfers between participants in
Euroclear and Cedel will be effected in the ordinary way in accordance with
their respective rules and operating procedures.

DTC has advised the Company that it will take any action permitted to be
taken by a holder of Senior Notes (including the presentation of Senior Notes
for exchange as described below) only at the direction of one or more
participants to whose account the DTC interests in the Global Notes is credited
and only in respect of such portion of the aggregate principal amount of Senior
Notes as to which such participant or participants has or have given such
direction. However, if there is an Event of Default under the Senior Notes, DTC
will exchange the Global Notes for Certificated Notes which it will distribute
to its participants and which, if representing interests in the Restricted
Global Note, will be legended as set forth under the heading "Transfer
Restrictions."

DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a "banking
organization" within the meaning of New York Banking Law, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of 1934. DTC was
created to hold securities for its participants and facilitate the clearance and
settlement of securities transactions between participants through electronic
book-entry changes in accounts of its participants, thereby eliminating the need
for physical movement of certificates. Participants include securities brokers
and dealers, banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly
("indirect participants").

Although DTC, Euroclear and Cedel have agreed to the foregoing procedures
in order to facilitate transfers of interest in the Global Notes among
participants of DTC, Euroclear and Cedel, they are under no obligation to
perform or continue to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC, Euroclear or Cedel or their
respective participants or indirect participants of their respective obligations
under the rules and procedures governing their operations.

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CERTIFICATED NOTES

If DTC is at any time unwilling or unable to continue as a depositary for
the Global Notes and a successor depositary is not appointed by the Company
within 90 days, the Company will issue Certificated Notes in exchange for the
Global Notes which, in the case of Senior Notes issued in exchange for the
Restricted Global Note, will bear the legend referred to under the heading
"Transfer Restrictions."

SAME-DAY SETTLEMENT

Settlement by purchasers of the Senior Notes will be made in immediately
available funds. All payments by the Company to DTC of principal and interest
will be made in immediately available funds.

So long as any Senior Notes or Exchange Notes are represented by Global
Notes registered in the name of DTC or its nominee, such Senior Notes or
Exchange Notes will trade in DTC's Same-Day Funds Settlement system, and
secondary market trading activity in such Senior Notes or Exchange Notes will
therefore be required by DTC to settle in immediately available funds.

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DESCRIPTION OF CERTAIN OTHER INDEBTEDNESS

9 1/4% SENIOR NOTES DUE 2004

On February 17, 1994, the Company issued $105.0 million aggregate principal
amount of 9 1/4% Senior Notes in an underwritten public offering. The 9 1/4%
Senior Notes are senior unsecured obligations of the Company and will rank pari
passu with the Senior Notes.

The 9 1/4% Senior Notes bear interest at a rate of 9 1/4% per annum payable
semi-annually on February l and August l of each year and mature on February 1,
2004. The 9 1/4% Senior Notes are redeemable at the option of the Company, in
whole or in part, at any time after February 1, 1999 at the various redemption
prices set forth in the 9 1/4% Senior Note Indenture, plus accrued interest to
the date of redemption. In addition, prior to February 1, 1997, up to $36.75
million of 9 1/4% Senior Notes may be redeemed at 109.25% of the principal
amount thereof, plus accrued interest, with the net proceeds of one or more
public equity offerings by the Company.

Upon a Change of Control Triggering Event (as defined in the 9 1/4%
Indenture), each holder of 9 1/4% Senior Notes will have the right to require
the Company to repurchase such 9 1/4% Senior Notes at 101% of the principal
amount thereof plus accrued and unpaid interest to the repurchase date. The
Credit Suisse Credit Facility limits the Company's ability to redeem the 9 1/4%
Senior Notes.

Similar to the Indenture governing the Senior Notes (and subject to similar
qualifications), the 9 1/4% Indenture contains certain covenants that, among
other things, limits (i) the incurrence of additional debt by the Company and
its subsidiaries, (ii) the payment of dividends on and redemptions of capital
stock by the Company and its subsidiaries, (iii) the use of proceeds from the
sale of assets and subsidiary stock, (iv) transactions with affiliates, (v) the
incurrence of liens, (vi) sale and leaseback transactions and (vii)
consolidations, mergers and certain transfers of assets.

The foregoing summary describes certain provisions of the 9 1/4% Indenture
and the 9 1/4% Senior Notes, a copy of each of which is available upon request
made to the Company. The foregoing summary does not purport to be complete and
is subject to and is qualified in its entirety by reference to the 9 1/4%
Indenture and the form of 9 1/4% Senior Notes.

OTHER

See "Description of Facilities" and "Management's Discussion and Analysis
of Results of Operations and Financial Condition" for a description of other
indebtedness of the Company, including the Credit Suisse Credit Facility.

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TRANSFER RESTRICTIONS

Unless and until an Old Note is exchanged for a New Note pursuant to the
Exchange Offer, it will bear the following legend on the face thereof.

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED
OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT
OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS
ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS
DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE
SECURITIES ACT) (AN "INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS
NOT A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION
IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES
THAT IT WILL NOT, WITHIN THREE YEARS AFTER THE LATER OF THE ORIGINAL
ISSUANCE OF THIS NOTE OR THE LAST DATE ON WHICH THIS NOTE WAS HELD BY AN
AFFILIATE OF THE COMPANY, RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT
(A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED
STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A
UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN
INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER,
FURNISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER
OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE)
AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF
NOTES AT THE TIME OF TRANSFER OF LESS THAN $250,000, AN OPINION OF
COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE
WITH THE SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E)
PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER
THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT
WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY
TRANSFER OF THIS NOTE WITHIN THREE YEARS AFTER THE LATER OF THE ORIGINAL
ISSUANCE OF THE NOTE OR THE LAST DATE ON WHICH THIS NOTE WAS HELD BY AN
AFFILIATE OF THE COMPANY, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET
FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND
SUBMIT THIS NOTE TO THE TRUSTEE. IF THE PROPOSED TRANSFEREE IS AN
INSTITUTIONAL ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH
TRANSFER, FURNISH TO THE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS,
LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY
REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION", "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN
TO THEM BY REGULATION S UNDER THE SECURITIES ACT. THE NOTE INDENTURE
CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY
TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING RESTRICTIONS.

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The New Notes will not contain such restrictive legend or be otherwise
subject to restrictions on their transfer, except each Global Note shall bear
the following legend on the face thereof:

UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE
COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH
OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND
ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE
OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.

TRANSFERS OF THIS NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT
NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS NOTE SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH
IN SECTION 2.08 OF THE INDENTURE.

CERTAIN FEDERAL INCOME TAX CONSIDERATIONS

The discussion set forth in this summary is based on the provisions of the
Internal Revenue Code of 1986, as amended, final, temporary and proposed
Treasury regulations thereunder ("Treasury Regulations"), and administrative and
judicial interpretations thereof, all as in effect on the date hereof and all of
which are subject to change (possibly on a retroactive basis). Legislative,
judicial or administrative changes or interpretations may be forthcoming that
could affect the tax consequences to holders of Senior Notes.

This summary is for general information only and does not purport to
address all of the federal income tax consequences that may be applicable to a
holder of Senior Notes. The tax treatment of a holder of Senior Notes may vary
depending on its particular situation. For example, certain holders, including
individual retirement and other tax-deferred accounts, insurance companies,
tax-exempt organizations, financial institutions, broker-dealers, foreign
corporations and individuals who are not citizens or residents of the United
States, may be subject to special rules not discussed below. In addition, this
discussion addresses the tax consequences to the initial holders of the Senior
Notes and not the tax consequences to subsequent transfers of the Senior Notes.

EACH HOLDER SHOULD CONSULT ITS OWN TAX ADVISOR WITH RESPECT TO THE FEDERAL
INCOME TAX CONSEQUENCES SET FORTH BELOW AND ANY OTHER FEDERAL, STATE, LOCAL OR
FOREIGN TAX CONSEQUENCES OF EXCHANGING OLD NOTES FOR NEW NOTES AND OF HOLDING
AND DISPOSING OF THE NEW NOTES.

EXCHANGE OFFER

On December 2, 1992, the Internal Revenue Service (the "IRS") issued
proposed regulations pursuant to Section 1001 of the Code addressing whether
modifications in debt instruments would constitute a taxable exchange. As a
result of the absence of any direct authority and in light of the proposed
regulations, it is unclear whether or not the exchange of Old Notes for New
Notes (the "Exchange") pursuant to the Exchange Offer will be treated as an
"exchange" for federal income tax purposes. Because the terms of the New Notes
appear neither to differ materially from nor significantly modify the terms of
the Old Notes, under Proposed Treasury Regulations Section 1.1001-3 each New
Note should be viewed as a continuation of the corresponding Old Note, the
issuance of the New Note should be disregarded, and a holder exchanging an Old
Note for a New Note (as well as a non-exchanging holder) should not recognize
any gain or loss as a result of the Exchange (or the Exchange Offer).

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If, however, the IRS treats the Exchange of Old Notes for New Notes as an
"exchange" for federal income tax purposes, such exchange should constitute a
recapitalization for federal income tax purposes. Holders exchanging Old Notes
pursuant to such a recapitalization should not recognize any gain or loss upon
the exchange. However, in such event, if the New Notes are "traded on an
established securities market" (as defined for purposes of Section 1273(b)(3) of
the Code), the New Notes may be issued with original issue discount ("OID")
equal to any excess of the stated redemption price at maturity of the New Notes
over the fair market value of the New Notes on the day of the Exchange. Such OID
would be included in the gross income of the holders of the New Notes as
described below. However, in the case of a holder whose tax basis for an Old
Note exceeds the issue price of the New Notes received in exchange therefor,
such OID may be reduced or eliminated by amortization deductions attributable to
the premium of the holder's tax basis over the issue price of the New Notes. If
the New Notes are deemed not to be "traded on an established securities market,"
the issue price of the New Notes in a deemed "exchange" should be the New Notes'
stated redemption price at maturity, which should result in no OID with respect
to the New Notes. It is not possible to predict whether all or any portion of
the New Notes will be so traded; and the Company cannot predict whether an
active public market will develop.

STATED INTEREST

A holder of a New Note will be required to report as income for federal
income tax purposes interest earned on a New Note in accordance with the
holder's method of tax accounting. A holder of a New Note using the accrual
method of accounting for tax purposes is, as a general rule, required to include
interest in ordinary income as such interest accrues, while a cash basis holder
must include interest income when cash payments are received (or made available
for receipt) by such holder.

ORIGINAL ISSUE DISCOUNT

As explained under the section entitled "Certain Federal Income Tax
Considerations -- Exchange Offer," if the Exchange of the Old Notes for the New
Notes is not treated as an "exchange" for federal income tax purposes, the New
Notes should be viewed as a continuation of the Old Notes, and there will be no
OID. If, however, the IRS were to treat the Exchange as an "exchange" for
federal income tax purposes, and the New Notes are "traded on an established
securities market" (as defined for purposes of Section 1273(b)(3) of the Code),
the New Notes may be issued with OID equal to the excess of the stated
redemption price at maturity of the New Notes over the fair market value of the
New Notes on the day of the Exchange. If the New Notes are deemed not to be
"traded on an established securities market," the issue price of the New Notes
in a deemed "exchange" should be the New Notes' stated redemption price at
maturity, which would result in no OID with respect to the New Notes.

The following summary is a general discussion of the federal income tax
consequences of the ownership of debentures issued with OID. The summary is
based upon Treasury Regulations issued by the IRS (the "OID Regulations").

If the New Notes are issued with OID within the meaning of Sections 1272
and 1273 of the Code and the OID Regulations, holders of the New Notes generally
will be required to include such OID in gross income as it accrues in advance of
the receipt of the cash attributable to such income. The total amount of OID
with respect to each New Note will be any excess of its "stated redemption price
at maturity" over its "issue price"; provided that a New Note will not be deemed
to have OID if such excess is less than 1/4 of 1% of the New Note's stated
redemption price at maturity multiplied by the number of complete years to its
maturity from its issue date. The "issue price" of a New Note will be equal to
its fair market value when issued. The "stated redemption price at maturity" of
a New Note is the sum of all payments provided by the New Note other than
"qualified stated interest" payments. The term "qualified stated interest"
generally means stated interest that is unconditionally payable in cash or
property (other than debt instruments of the issuer) at least annually at a
single fixed rate.

A holder of a New Note must include OID in income for federal income tax
purposes as it accrues under a "constant yield method" in advance of receipt of
cash payments attributable to such income, regardless of

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such holder's method of accounting for tax purposes. In general, the amount of
OID included in income by the initial holder of a New Note is the sum of the
"daily portion" of OID with respect to such New Note for each day during the
taxable year on which such holder held such New Note. The "daily portion" of OID
on any New Note is determined by allocating to each day in any "accrual period"
a ratable portion of the OID allocable to that accrual period. The "accrual
period" with respect to the New Notes is the six-month period (or shorter period
from the date of original issue of the New Note) which ends on May 15 or
November 15 in each calendar year.

Under the "constant yield method," the amount of OID allocable to each
accrual period is equal to the product of the New Note's "adjusted issue price"
at the beginning of such accrual period and its "yield to maturity" (determined
on the basis of compounding at the close of each accrual period). The "adjusted
issue price" of a New Note at the beginning of the first accrual period is the
issue price. Thereafter, the adjusted issue price of a New Note is the sum of
the issue price of the New Note plus the amount of OID allocable to all prior
periods, minus any prior payments on the New Note other than payments of
"qualified stated interest." The "yield to maturity" or "yield" of a New Note is
the discount rate that, when used in computing the present value of all
principal and interest payments to be made under the New Note, produces an
amount equal to the issue price of the New Note. The yield must be constant over
the term of the New Note.

The Company is required to furnish certain information to the IRS and will
furnish annually to record holders of the New Notes information with respect to
the OID, if any, accruing during the calendar year (as well as interest paid
during that year). The Company intends to take the position that the Exchange
does not constitute an exchange for federal income tax purposes and that there
is no OID.

SALE, EXCHANGE, OR REDEMPTION OF A NOTE

Upon the sale, exchange (other than pursuant to the Exchange as discussed
above), or redemption of a Senior Note, a holder will recognize taxable gain or
loss equal to the difference between (i) the amount of cash and the fair market
value of property received (other than amounts received attributable to interest
not previously taken into account, which amount will be treated as interest
received), and (ii) the holder's adjusted tax basis in the Senior Note. A
holder's adjusted tax basis in a Senior Note generally will equal the cost of
the Senior Note to the holder, increased by the amount of any OID previously
included in income by the holder with respect to the Senior Note and reduced by
any payments previously received by the holder with respect to the Senior Note,
other than qualified stated interest payments, and by any premium amortization
deductions previously claimed by the holder. Provided the Senior Note is a
capital asset in the hands of the holder and has been held for more than one
year, any gain or loss recognized by the holder will generally be a long-term
capital gain or loss.

BACKUP WITHHOLDING

Under the backup withholding rules, a holder of a Senior Note may be
subject to a backup withholding at the rate of 31% on interest paid on the
Senior Note or on any other cash payment with respect to the sale or redemption
of the Senior Note, unless (i) such holder is a corporation or comes under
certain other exempt categories and when required demonstrates this fact or (ii)
such holder provides a correct taxpayer identification number, certifies as to
no loss of exemption from backup withholding, and otherwise complies with
applicable requirements of the backup withholding rules in the Treasury
Regulations. Prospective holders of the Senior Notes (who have not previously
furnished a Form W-9 with respect to the Old Notes) will be required to complete
a Form W-9 in order to provide the required information to the Company. A holder
of a Senior Note who does not provide the Company with the holder's correct
taxpayer identification number may be subject to penalties imposed by the IRS.

The Company will report to the holders of the Senior Notes and to the IRS
the amount of any "reportable payments" for each calendar year and the amount of
tax withheld, if any, with respect to payments on the Senior Notes.

Any amounts withheld under the backup withholding rules will be allowed as
a refund or a credit against the holder's federal income tax liability, provided
that the required information is furnished to the IRS.

124
<PAGE> 128

THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS FOR
GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, EACH HOLDER SHOULD
CONSULT ITS OWN TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES OF THE
EXCHANGE, OWNERSHIP, AND DISPOSITION OF THE SENIOR NOTES (INCLUDING THE
APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN, AND OTHER TAX LAWS).

PLAN OF DISTRIBUTION

Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Company has agreed that it will make this Prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale for a period of 180 days from the date of this Prospectus,
or such shorter period as will terminate when all Old Notes acquired by
broker-dealers for their own accounts as a result of market-making activities or
other trading activities have been exchanged for New Notes and resold by such
broker-dealers.

The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own accounts
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market or, in negotiated transactions or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such New
Notes. Any broker-dealer that resells New Notes that were received by it for its
own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such New Notes may be deemed to be an
"Underwriter" within the meaning of the Securities Act and any profit on any
such resale of New Notes and any commissions or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The Letter of Transmittal states that by acknowledging that it will deliver and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.

For a period of 180 days from the date of this Prospectus, or such shorter
period as will terminate when all Old Notes acquired by broker-dealers for their
own accounts as a result of market-making activities or other trading activities
have been exchanged for New Notes and resold by such broker-dealers, the Company
will promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to indemnify such
broker-dealers against certain liabilities, including liabilities under the
Securities Act.

LEGAL MATTERS

The validity of the New Notes will be passed upon for the Company by
Brobeck, Phleger & Harrison LLP, San Francisco, California.

EXPERTS

The consolidated financial statements and schedules of the Company as of
December 31, 1995 and 1994 and for the three years ended December 31, 1995, 1994
and 1993, the financial statements of Calpine Geysers Company, L.P. for the
period ended April 18, 1993 and the financial statements of BAF Energy, A
California Limited Partnership as of October 31, 1995 and 1994 and for the three
years ended October 31, 1995, 1994 and 1993 included in this Prospectus and
elsewhere in the Registration Statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon authority of said firm as
experts in giving said reports. In the reports for

125
<PAGE> 129

the Company, that firm states that with respect to Sumas Cogeneration Company,
L.P., its opinion is based on the reports of other independent public
accountants, namely Moss Adams LLP.

The consolidated financial statements of Sumas Cogeneration Company, L.P.
and Subsidiary as of December 31, 1995 and 1994 and for the three years ended
December 31, 1995, 1994 and 1993 appearing in this Prospectus have been audited
by Moss Adams LLP, independent public accountants, as indicated in their reports
with respect thereto, and are included herein in reliance upon authority of said
firm as experts in giving said reports.

The combined financial statements of LFC No. 38 Corp. and Portsmouth
Leasing Corporation and Subsidiaries and the consolidated financial statements
of LFC No. 60 Corp. and Subsidiary as of December 31, 1994 and 1993 and for the
years then ended appearing in this Prospectus have been audited by Coopers &
Lybrand L.L.P., independent accountants, as indicated in their reports with
respect thereto, and are included herein in reliance upon authority of said firm
as experts in giving said reports.

126
<PAGE> 130

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CALPINE CORPORATION
Report of Independent Public Accountants.............................................. F-3
Consolidated Balance Sheets, December 31, 1995 and 1994............................... F-4
Consolidated Statements of Operations for the Years Ended December 31, 1995, 1994 and
1993................................................................................ F-5
Consolidated Statements of Shareholder's Equity for the Years Ended December 31, 1995,
1994 and 1993....................................................................... F-6
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and
1993................................................................................ F-7
Notes to Consolidated Financial Statements for the Years Ended December 31, 1995, 1994
and 1993............................................................................ F-8
Condensed Consolidated Balance Sheets, March 31, 1996 and March 31, 1995
(Unaudited)......................................................................... F-29
Condensed Consolidated Statements of Operations for the Three Months Ended March 31,
1996 and 1995 (Unaudited)........................................................... F-30
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31,
1996 and 1995 (Unaudited)........................................................... F-31
Notes to Condensed Consolidated Financial Statements for the Three Months Ended March
31, 1996 and 1995 (Unaudited)....................................................... F-32
SUMAS COGENERATION COMPANY, L.P. AND SUBSIDIARY
Report of Independent Public Accountants.............................................. F-37
Consolidated Balance Sheets, December 31, 1995 and 1994............................... F-38
Consolidated Statement of Operations for the Years Ended December 31, 1995, 1994 and
1993................................................................................ F-39
Consolidated Statement of Changes in Partners' Deficit for the Years Ended December
31, 1995, 1994 and 1993............................................................. F-40
Consolidated Statement of Cash Flows for the Years Ended December 31, 1995, 1994 and
1993................................................................................ F-41
Notes to Consolidated Financial Statements for the Years Ended December 31, 1995, 1994
and 1993............................................................................ F-42
CALPINE GEYSERS COMPANY, L.P.
Report of Independent Public Accountants.............................................. F-51
Statement of Operations for the Period from January 1, 1993 to April 18, 1993......... F-52
Statement of Cash Flows for the Period from January 1, 1993 to April 18, 1993......... F-53
Notes to Financial Statements for the Period from January 1, 1993 to April 18, 1993... F-54
LFC NO. 38 CORP. AND PORTSMOUTH LEASING CORPORATION AND SUBSIDIARIES
Report of Independent Public Accountants.............................................. F-59
Combined Balance Sheets, December 31, 1994 and 1993................................... F-60
Combined Statement of Operations for the Years Ended December 31, 1994 and 1993....... F-61
Combined Statements of Changes in Shareholder's Deficiency for the Years Ended
December 31, 1994 and 1993.......................................................... F-62
Combined Statements of Cash Flows for the Years Ended December 31, 1994 and 1993...... F-63
Notes to Combined Financial Statements for the Years Ended December 31, 1994 and
1993................................................................................ F-64
LFC NO. 60 CORP. AND SUBSIDIARY
Report of Independent Public Accountants.............................................. F-68
Consolidated Balance Sheets, December 31, 1994 and 1993............................... F-69
Consolidated Statements of Operations for the Years Ended December 31, 1994 and
1993................................................................................ F-70
Consolidated Statements of Changes in Shareholder's Deficiency for the Years Ended
December 31, 1994 and 1993.......................................................... F-71
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994 and
1993................................................................................ F-72
Notes to Consolidated Financial Statements for the Years Ended December 31, 1994 and
1993................................................................................ F-73
</TABLE>

F-1
<PAGE> 131

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
BAF ENERGY, A CALIFORNIA LIMITED PARTNERSHIP
Report of Independent Public Accountants.............................................. F-76
Balance Sheets, October 31, 1995 and 1994............................................. F-77
Statements of Income for the Years Ended October 31, 1995, 1994 and 1993.............. F-78
Statements of Partners' Equity for the Years Ended October 31, 1995, 1994 and 1993.... F-79
Statements of Cash Flows for the Years Ended October 31, 1995, 1994 and 1993.......... F-80
Notes to Financial Statements for the Years Ended October 31, 1995, 1994 and 1993..... F-81
Condensed Balance Sheets as of January 31, 1996 (unaudited) and October 31, 1995...... F-85
Condensed Statements of Income for the Three Months Ended January 31, 1996 and 1995
(unaudited)......................................................................... F-86
Condensed Statements of Cash Flows for the Three Months Ended January 31, 1996 and
1995 (unaudited).................................................................... F-87
Notes to Condensed Financial Statements as of January 31, 1996........................ F-88
</TABLE>

F-2
<PAGE> 132

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To The Board of Directors
of Calpine Corporation:

We have audited the accompanying consolidated balance sheets of Calpine
Corporation (a California corporation and a wholly owned subsidiary of
Electrowatt Services, Inc., a Delaware corporation) and subsidiaries as of
December 31, 1995 and 1994, and the related consolidated statements of
operations, shareholder's equity and cash flows for each of the three years in
the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
financial statements of Sumas Cogeneration Company, L.P. (Sumas), the investment
in which is reflected in the accompanying financial statements using the equity
method of accounting. The investment in Sumas represents approximately 1% and 2%
of the Company's total assets at December 31, 1995 and 1994, respectively. The
Company has recorded a loss of $3.0 million, $2.9 million and $1.9 million
representing its share of the net loss of Sumas for the years ended December 31,
1995, 1994 and 1993, respectively. The financial statements of Sumas were
audited by other auditors whose report has been furnished to us and our opinion,
insofar as it relates to the amounts included for Sumas, is based solely on the
report of other auditors.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.

In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Calpine Corporation and subsidiaries as of December
31, 1995 and 1994, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.

ARTHUR ANDERSEN LLP

San Jose, California
March 15, 1996

F-3
<PAGE> 133

CALPINE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)

<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents..................................................... $ 21,810 $ 22,527
Accounts receivable
from related parties....................................................... 2,177 1,864
from others................................................................ 17,947 12,723
Acquisition project receivables............................................... 8,805 --
Prepaid expenses and other current assets..................................... 5,491 4,256
-------- --------
Total current assets.................................................. 56,230 41,370
Property, plant and equipment, net.............................................. 447,751 335,453
Investments in power projects................................................... 8,218 11,114
Capitalized project costs....................................................... 1,123 645
Notes receivable from related parties........................................... 19,391 16,882
Notes receivable from Coperlasa................................................. 6,394 --
Restricted cash................................................................. 9,627 10,813
Deferred charges and other assets............................................... 5,797 5,095
-------- --------
Total assets.......................................................... $554,531 $421,372
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Current non-recourse project financing........................................ $ 84,708 $ 22,800
Notes payable to bank and short-term borrowings............................... 1,177 4,500
Accounts payable.............................................................. 6,876 1,869
Accrued payroll and related expenses.......................................... 2,789 2,624
Accrued interest payable...................................................... 7,050 5,622
Other accrued expenses........................................................ 2,657 2,517
-------- --------
Total current liabilities............................................. 105,257 39,932
Long-term line of credit........................................................ 19,851 --
Non-recourse long-term project financing, less current portion.................. 190,642 196,806
Notes payable................................................................... 6,348 5,296
Senior Notes Due 2004........................................................... 105,000 105,000
Deferred income taxes, net...................................................... 97,621 50,928
Deferred revenue................................................................ 4,585 4,761
-------- --------
Total liabilities..................................................... 529,304 402,723
-------- --------
Commitments and contingencies (Note 25)
Shareholder's equity
Class A common stock, $.01 par value -- authorized 3,500,000 shares, issued
and outstanding -- none.................................................... -- --
Class B common stock, $.01 par value -- authorized 3,000,000 shares, issued
and outstanding -- 2,000,000 shares in 1995 and 1994....................... 20 20
Additional paid-in capital.................................................... 6,204 6,204
Retained earnings............................................................. 19,034 12,456
Cumulative translation adjustment............................................. (31) (31)
-------- --------
Total shareholder's equity............................................ 25,227 18,649
-------- --------
Total liabilities and shareholder's equity............................ $554,531 $421,372
======== ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-4
<PAGE> 134

CALPINE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Revenue
Electricity and steam sales.............................. $127,799 $ 90,295 $ 53,000
Service contract revenue from related parties............ 7,153 7,221 16,896
Income (loss) from unconsolidated investments in power
projects.............................................. (2,854) (2,754) 19
-------- ------- -------
Total revenue.................................... 132,098 94,762 69,915
-------- ------- -------
Cost of revenue
Plant operating expenses................................. 33,162 14,944 9,078
Depreciation............................................. 26,264 21,202 12,272
Production royalties..................................... 10,574 11,153 6,814
Operating lease expense.................................. 1,542 -- --
Service contract expenses................................ 5,846 5,546 14,337
-------- ------- -------
Total cost of revenue............................ 77,388 52,845 42,501
-------- ------- -------
Gross profit............................................... 54,710 41,917 27,414
Project development expenses............................. 3,087 1,784 1,280
General and administrative expenses...................... 8,937 7,323 5,080
Provision for write-off of project development costs..... -- 1,038 --
-------- ------- -------
Income from operations........................... 42,686 31,772 21,054
Other (income) expense
Interest expense
Related party......................................... 1,663 375 2,613
Other................................................. 30,491 23,511 11,212
Other income, net........................................ (1,895) (1,988) (1,133)
-------- ------- -------
Income before provision for income taxes and
cumulative effect of change in accounting
principle........................................... 12,427 9,874 8,362
Provision for income taxes............................... 5,049 3,853 4,195
-------- ------- -------
Income before cumulative effect of change in
accounting principle................................ 7,378 6,021 4,167
Cumulative effect of adoption of SFAS No. 109............ -- -- (413)
-------- ------- -------
Net income....................................... $ 7,378 $ 6,021 $ 3,754
======== ======= =======
Weighted averages shares outstanding....................... 2,214 2,177 2,164
Earnings per share
Income before cumulative effect of change in accounting
principle............................................. $ 3.33 $ 2.77 $ 1.93
Cumulative effect of adoption of SFAS No. 109............ -- -- (.19)
-------- ------- -------
Net income per share............................. $ 3.33 $ 2.77 $ 1.74
======== ======= =======
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-5
<PAGE> 135

CALPINE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE
--------------- PAID-IN RETAINED TRANSLATION
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT TOTAL
------ ------ ---------- -------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992....................... 2,000 $ 20 $6,204 $ 4,281 $ -- $10,505
Dividend ($0.40 per share)..................... -- -- -- (800 ) -- (800)
Net income..................................... -- -- -- 3,754 -- 3,754
Cumulative translation adjustment.............. -- -- -- -- (31) (31)
----- --- ------ ------- ---- -------
Balance, December 31, 1993....................... 2,000 20 6,204 7,235 (31) 13,428
Dividend ($0.40 per share)..................... -- -- -- (800 ) -- (800)
Net income..................................... -- -- -- 6,021 -- 6,021
----- --- ------ ------- ---- -------
Balance, December 31, 1994....................... 2,000 20 6,204 12,456 (31) 18,649
Dividend ($0.40 per share)..................... -- -- -- (800 ) -- (800)
Net income..................................... -- -- -- 7,378 -- 7,378
----- --- ------ ------- ---- -------
Balance, December 31, 1995....................... 2,000 $ 20 $6,204 $19,034 $(31) $25,227
===== === ====== ======= ==== =======
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-6
<PAGE> 136

CALPLNE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)

<TABLE>
<CAPTION>
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities
Net income................................................. $ 7,378 $ 6,021 $ 3,754
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization, net...................... 25,931 20,342 11,318
Deferred income taxes, net.............................. (1,027) 3,180 4,619
(Income) loss from unconsolidated investments in power
projects.............................................. 2,854 2,754 (19)
Distributions from investments in power projects........ -- -- 7,352
Provision for write-off of project development costs.... -- 1,038 --
Change in operating assets and liabilities:
Accounts receivable................................... (3,354) (2,578) (615)
Acquisition project receivables....................... (8,805) -- --
Other current assets.................................. (737) 79 (956)
Accounts payable and accrued expenses................. 6,847 6,218 (3,040)
Deferred revenue...................................... (2,434) (2,858) 1,897
-------- -------- --------
Net cash provided by operating activities.......... 26,653 34,196 24,310
-------- -------- --------
Cash flows from investing activities
Acquisition of property, plant and equipment............... (17,434) (7,023) (8,445)
Acquisition of Greenleaf, net of cash on hand.............. (14,830) -- --
Investment in Watsonville, net of cash on hand............. 494 -- --
Acquisition of TPC, net of cash on hand.................... -- (62,770) --
Acquisition of CGC, net of CGC cash on hand................ -- -- (20,296)
Increase in notes receivable............................... (6,348) (13,556) --
Investments in power projects.............................. -- (118) (627)
Capitalized project costs.................................. (1,258) (175) (952)
Decrease (increase) in restricted cash..................... 1,186 (900) 2,968
Other, net................................................. (307) 98 270
-------- -------- --------
Net cash used in investing activities.............. (38,497) (84,444) (27,082)
-------- -------- --------
Cash flows from financing activities
Payment of dividends....................................... (800) (800) (800)
Borrowings from line of credit............................. 34,851 -- 23,000
Repayments of line of credit............................... (15,000) (52,595) (5,873)
Borrowings from non-recourse project financing............. 76,026 60,000 --
Repayments of non-recourse project financing............... (79,388) (12,735) (8,800)
Short-term borrowings...................................... 2,683 4,500 --
Repayments of short-term borrowings........................ (6,006) -- --
Senior Notes Due 2004...................................... -- 105,000 --
Financing costs............................................ (1,239) (3,921) (749)
Repayment of note payable to shareholder................... -- (1,200) --
Proceeds from note payable................................. -- 5,167 --
Repayment of notes payable -- FMRP......................... -- (36,807) --
-------- -------- --------
Net cash provided by financing activities.......... 11,127 66,609 6,778
-------- -------- --------
Net increase (decrease) in cash and cash equivalents......... (717) 16,361 4,006
Cash and cash equivalents, beginning of period............... 22,527 6,166 2,160
-------- -------- --------
Cash and cash equivalents, end of period..................... $ 21,810 $22,527 $ 6,166
======== ======== ========
Supplementary information -- cash paid during the year for:
Interest................................................... $ 32,162 $19,890 $15,084
Income taxes............................................... 4,294 683 13
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-7
<PAGE> 137

CALPINE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

1. ORGANIZATION AND OPERATIONS OF THE COMPANY

Calpine Corporation (Calpine), a California corporation, and subsidiaries
(collectively, the Company) are engaged in the development, acquisition,
ownership and operation of power generation facilities in the United States. The
Company has ownership interests in and operates geothermal steam fields,
geothermal power generation facilities, and natural gas-fired cogeneration
facilities in Northern California and Washington. Each of the generation
facilities produces electricity for sale to utilities. Thermal energy produced
by the gas-fired cogeneration facilities is sold to governmental and industrial
users, and steam produced by the geothermal steam fields is sold to
utility-owned power plants. For the year ended December 31, 1995, primarily all
electricity and steam sales revenue from consolidated subsidiaries was derived
from sales to two customers in Northern California (see Note 24), of which 73%
related to geothermal activities.

Founded in 1984, the Company is wholly owned by Electrowatt Services, Inc.,
which is wholly owned by Electrowatt Ltd. (Electrowatt), a Swiss company. The
Company has expertise in the areas of engineering, finance, construction and
plant operations and maintenance.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation -- The consolidated financial statements
include the accounts of Calpine Corporation and its wholly owned and majority
owned subsidiaries. All significant intercompany accounts and transactions are
eliminated in consolidation. During 1993, the Company acquired the remaining
interests in Calpine Geysers Company, L.P. (CGC) (see Note 3). Prior to the
acquisition, the Company recognized its share of the net income of CGC under the
equity method of accounting. During 1994, the Company formed Calpine Thermal
Power, Inc. (Calpine Thermal) and Calpine Siskiyou Geothermal Partners, L.P.
(see Notes 4 and 7, respectively). Calpine Thermal acquired Thermal Power
Company (TPC) during 1994. During 1995, the Company formed Calpine Greenleaf
Corporation (Calpine Greenleaf), Calpine Monterey Cogeneration, Inc. (CMCI) and
Calpine Vapor, Inc. (Calpine Vapor). Calpine Greenleaf indirectly acquired two
operating gas-fired cogeneration plants (see Note 5) and CMCI acquired an
operating lease for a gas-fired cogeneration facility (see Note 6). Calpine
Vapor made loans to fund construction of new geothermal wells in Mexico (see
Note 8).

Accounting for Jointly Owned Geothermal Properties -- The Company uses the
proportionate consolidation method to account for TPC's 25% interest in jointly
owned geothermal properties. TPC has a steam sales agreement with Pacific Gas
and Electric Company (PG&E) pursuant to which the steam derived from its
interest in the properties is sold. See Note 4 for further information regarding
TPC.

Use of Estimates in Preparation of Financial Statements -- The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates. The most significant estimates with regard to these
financial statements relate to future development costs and total productive
resources of the geothermal facilities (see Property, Plant and Equipment and
Note 4), the estimated "free steam" liability (see Revenue Recognition and
Deferred Revenue), receivables which the Company believes to be collectible (see
Note 10), and the realization of deferred income taxes (see Note 19).

Revenue Recognition and Deferred Revenue -- Revenue from electricity and
steam sales is recognized upon transmission to the customer. Revenues from
contracts entered into or acquired since May 21, 1992 are recognized at the
lesser of amounts billable under the contract or amounts recognizable at an
average rate over the term of the contract. The Company's power sales agreements
related to CGC were entered into prior to

F-8
<PAGE> 138

CALPINE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

May 1992. Had the Company applied this principle, the revenues of the Company
recorded for the years ended December 31, 1995 and 1994, and for the period from
April 19, 1993 to December 31, 1993, would have been approximately $12.6
million, $11.9 million and $6.5 million less, respectively.

CGC revenues from sales of steam were calculated considering a future
period when steam would be delivered without receiving corresponding revenue.
The estimated "free steam" obligation was recorded at an average rate over
future steam production as deferred revenue in 1993. As of December 31, 1993,
the Company had deferred revenue of $8.6 million. During 1994, based on
estimates and analyses performed, the Company determined that these deliveries
would no longer be required for a customer. In May 1994, the Company reversed
approximately $5.9 million of its deferred revenue liability. This reversal was
recorded as a $1.9 million purchase price reduction to property, plant and
equipment, with the remaining $4.0 million as an increase in revenue.
Concurrently, $800,000 of the revenue increase was reserved for future
construction of gathering systems required for future production of the steam
fields, with the offset recorded in property, plant and equipment.

In October 1994, PG&E agreed to the termination of the free steam provision
for one of the geothermal steam fields. During 1995, CGC took additional
measures regarding future capital commitments and other actions which will
increase steam production and, based on additional analyses and estimates
performed, the Company recognized the remaining $2.7 million of previously
deferred revenue.

The Company performs operations and maintenance services for projects in
which it has an interest. Revenue from investees is recognized on these
contracts when the services are performed. Revenue from consolidated
subsidiaries are eliminated in consolidation.

Cash and Cash Equivalents -- The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents. The carrying amount of these instruments approximates fair value
because of their short maturity.

Restricted Cash -- The Company is required to maintain cash balances that
are restricted by provisions of its debt agreements and by regulatory agencies.
The Company's debt agreements specify restrictions based on debt service
payments and drilling costs for the following year. Regulatory agencies require
cash to be restricted to ensure that funds will be available to restore property
to its original condition. Restricted cash is invested in accounts earning
market rates; therefore, their carrying value approximates fair value. Such cash
is excluded from cash and cash equivalents for the purposes of the statements of
cash flows.

Concentration of Credit Risk -- Financial instruments which potentially
subject the Company to concentrations of credit risk consist primarily of cash
and accounts/notes receivable. The Company's cash accounts are held by five
major financial institutions. The Company's accounts/notes receivable are
concentrated within entities engaged in the energy industry, mainly within the
United States, some of which are related parties. Certain of the Company's notes
receivable are with a company in Mexico (see Note 8).

Property, Plant and Equipment -- Property, plant and equipment are stated
at cost less accumulated depreciation and amortization.

The Company capitalizes costs incurred in connection with the development
of geothermal properties, including costs of drilling wells and overhead
directly related to development activities, together with the costs of
production equipment, the related facilities and the operating power plants.
Geothermal properties include the value attributable to the geothermal resources
of CGC and all of the property, plant and equipment of Calpine Thermal. Proceeds
from the sale of geothermal properties are applied against capitalized costs,
with no gain or loss recognized.

Geothermal costs, including an estimate of future development costs to be
incurred and the estimated costs to dismantle, are amortized by the units of
production method based on the estimated total productive output over the
estimated useful lives of the related steam fields. Depreciation of the
buildings and roads is

F-9
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CALPINE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

computed using the straight-line method over their estimated useful lives. It is
reasonably possible that the estimate of useful lives, total units of production
or total capital costs to be amortized using the units of production method
could differ materially in the near term from the amounts assumed in arriving at
current depreciation expense. These estimates are affected by such factors as
the ability of the Company to continue selling steam and electricity to
customers at estimated prices, changes in prices of alternative sources of
energy such as hydro-generation and gas, and changes in the regulatory
environment.

Gas-fired power production facilities include the cogeneration plants and
related equipment and are stated at cost. Depreciation is recorded utilizing the
straight-line method over the estimated original useful life of up to thirty
years. Depreciation of office equipment is provided on the straight-line method
over useful lives of three to five years. Amortization of leasehold improvements
is provided based on the straight-line method over the lesser of the useful life
of the asset or the life of the lease. When assets are disposed of, the cost and
related accumulated depreciation are removed from the accounts, and the
resulting gains or losses are included in the results of operations.

As of December 31, 1995 and 1994, the components of property, plant and
equipment are (in thousands):

<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Geothermal properties.......................................... $216,042 $209,243
Buildings...................................................... 147,532 29,149
Machinery and equipment........................................ 50,826 47,125
Wells and well pads............................................ 44,706 43,982
Steam gathering and control systems............................ 28,363 28,296
Roads.......................................................... 7,384 7,384
Miscellaneous assets........................................... 2,425 1,694
-------- --------
497,278 366,873
Less accumulated depreciation and amortization................. 60,511 34,020
-------- --------
436,767 332,853
Land........................................................... 754 413
Construction in progress....................................... 10,230 2,187
-------- --------
Property, plant and equipment, net........................... $447,751 $335,453
======== ========
</TABLE>

Investments in Power Projects -- The Company accounts for its
unconsolidated investments in power projects under the equity method. The
Company's share of income from these investments is calculated according to the
Company's equity ownership or in accordance with the terms of the appropriate
partnership agreement (see Note 11).

Capitalized Project Costs -- The Company capitalizes project development
costs upon the execution of a memorandum of understanding or a letter of intent
for a power or steam sales agreement. These costs include professional services,
salaries, permits and other costs directly related to the development of a new
project. Outside services and other third-party costs are capitalized for
acquisition projects. Upon the start-up of plant operations or the completion of
an acquisition, these costs are generally transferred to property, plant and
equipment and amortized over the estimated useful life of the project.
Capitalized project costs are charged to expense when the Company determines
that the project will not be consummated or is impaired.

Earnings Per Share -- Earnings per share are calculated using the weighted
average number of shares outstanding during each year and the net additional
number of shares which would be issuable upon the exercise of outstanding stock
options, assuming that the Company used the proceeds received to purchase
additional shares at the estimated fair market value, as determined by the Board
of Directors, based in part on an independent appraisal.

F-10
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CALPINE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Reclassifications -- Prior years' amounts in the consolidated financial
statements have been reclassified where necessary to conform to the 1995
presentation.

3. CALPINE GEYSERS COMPANY, L.P.

CGC, an indirect wholly owned subsidiary of the Company, is the owner of
two operating geothermal power plants and their respective steam fields, Bear
Canyon and West Ford Flat, and three geothermal steam fields, which provide
steam to PG&E's Unit 13 and Unit 16 power plants and to Sacramento Municipal
Utility District's (SMUD) geothermal power plant. The power plants and steam
fields are located in The Geysers area of Northern California. Electricity from
CGC's two operating geothermal power plants is sold to PG&E under 20-year
agreements. Under the terms of the agreements which began in 1989, CGC is paid
for energy delivered based upon a fixed price which escalates annually through
December 1998, and upon PG&E's full short-run avoided operating costs for the
subsequent ten years. CGC also receives capacity payments from PG&E. Under
certain circumstances, if CGC is unable to deliver firm capacity, then CGC may
owe PG&E certain minimum damages as specified in the agreements.

Under the steam sales agreements with PG&E and SMUD, the price paid for the
steam is determined annually and semiannually, respectively, based on contract
price formulas and steam delivery terms.

Under the PG&E Unit 16 and the SMUD agreements, if the quantity of steam
delivered is less than 50% of the units' capacities, then neither PG&E nor SMUD
is required to make payment for steam delivered during such month until the cost
of the affected power plant has been completely amortized (see Note 2). Further,
both PG&E and SMUD can terminate their agreements with written notice under
conditions specified in the agreement if further operation of the plants becomes
uneconomical. In the event that CGC terminates the agreements, PG&E or SMUD may
require CGC to assign them all rights, title and interest to the wells, lands
and related facilities. In consideration for such an assignment to SMUD, SMUD
shall reimburse CGC for its original costs net of depreciation for any
associated materials or facilities.

Prior to April 19, 1993 the Company owned a minority interest in CGC and
recognized its share of CGC's net income under the equity method. On April 19,
1993, the Company acquired Freeport-McMoRan Resource Partners, L.P.'s (FMRP)
interest in CGC for $23.0 million in cash and non-recourse notes payable to FMRP
totaling $40.5 million. On February 17, 1994, the Company exercised its option
to prepay the notes utilizing a discount rate of 10% by paying $36.9 million
including interest in full satisfaction of its obligations under the FMRP notes.
The difference between the original carrying amount of the notes and the
prepayment was recorded as an adjustment to the purchase price.

4. CALPINE THERMAL POWER, INC.

On September 9, 1994, Calpine Thermal acquired the outstanding capital
stock of TPC from Natomas Energy Company (Natomas), a wholly owned subsidiary of
Maxus Energy Company, pursuant to a Stock Purchase Agreement dated June 27,
1994. Under the terms of the Stock Purchase Agreement, Calpine Thermal acquired
the stock of TPC for a total purchase price of $66.5 million, consisting of a
$60.0 million cash payment and the issuance by Calpine of a non-interest bearing
promissory note to Natomas in the amount of $6.5 million (discounted to $5.2
million), which is due September 9, 1997. At or subsequent to the closing of the
acquisition, Calpine received payments of $3.0 million from Natomas, which
represented cash from TPC's operations for the period from July 1, 1994 to
September 8, 1994. These payments were treated as purchase price adjustments.
The Company funded the cash portion of the purchase price in the acquisition
through a two-year non-recourse secured financing provided by The Bank of Nova
Scotia pursuant to a Credit Agreement dated September 9, 1994 (see Note 16).

Calpine Thermal owns a 25% undivided interest in certain producing
geothermal steam fields located at The Geysers area of Northern California.
Union Oil Company of California, a wholly owned subsidiary of

F-11
<PAGE> 141

CALPINE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Unocal Corporation, owns the remaining 75% interest in the steam fields, which
deliver geothermal steam to twelve operating plants owned by PG&E. The steam
fields currently provide the twelve operating plants with sufficient steam to
generate approximately 604 megawatts of electricity.

Steam from Calpine Thermal's steam field is sold to PG&E under a steam
sales agreement. In addition, Calpine Thermal receives a monthly capacity
maintenance fee, which provides for effluent disposal costs and facilities
support costs, and a monthly fee for PG&E's right to curtail its power plants.
The steam price, capacity maintenance and curtailment fees are adjusted
annually. Calpine Thermal is required to compensate PG&E for the unused capacity
of its geothermal power plants due to insufficient field capacities of its steam
supply (offset payment).

In accordance with the steam sales agreement, PG&E may curtail the power
plants which receive steam from the Union Oil/Calpine Thermal Steam Fields in
order to produce energy from lower cost sources. However, PG&E is constrained by
its contractual obligation to operate all the power plants at a minimum of 40%
of the field capacity during any given year. During 1995, Calpine Thermal
experienced extensive curtailments of steam production due to low gas prices and
abundant hydro power.

In March 1995, PG&E notified Union Oil and TPC of its plan to accelerate
the retirement of the geothermal power plants to which steam is supplied.
Calpine Thermal had considered plant retirements in its analysis leading to the
acquisition of TPC in September 1994. Calpine Thermal had no assurance that PG&E
would follow the accelerated schedule which was not in accordance with the terms
and conditions of the steam sales agreement, and, with Union Oil, entered into
intensive discussions with PG&E regarding alternatives. As a result of those
discussions, the March 1995 accelerated closure schedule has been reevaluated in
accordance with expected steam supply projections, curtailment levels, and
actual contract terms and conditions to result in estimates of future project
output and revised closure schedules. Closure schedules will continue to be
modified throughout the life of the power sales agreement to be consistent with
actual production levels based on competitive energy prices and weather.

On August 9, 1995, the Company, Union Oil and PG&E executed a letter
agreement on alternative steam pricing for the calendar year 1995. Under this
agreement, all steam delivered up to 40% of field capacity remained at the
original contract rate, and all other steam was sold at a 33% reduction to the
contract rate, thus lowering the cost to PG&E and enhancing production and
revenue from The Geysers to Union Oil and Calpine Thermal. On February 1, 1996,
the Company and Union Oil entered into an alternative steam pricing agreement
with PG&E for the month of February 1996, which was subsequently extended
through at least March 15, 1996. The parties to this agreement are currently in
the process of negotiating a longer term alternative pricing agreement. The
Company is unable to predict the sales and prices that may result from such an
alternative pricing program.

The steam sales agreement between Calpine Thermal and PG&E terminates two
years after the closing of the last PG&E operating unit. PG&E may terminate the
agreement upon a one-year written notice to Calpine Thermal. In the event the
agreement is terminated by PG&E, Calpine Thermal has the right to purchase
PG&E's facilities at PG&E's unamortized cost. Calpine Thermal will provide
capacity maintenance services for five years after termination by PG&E or
closure of the last PG&E operating unit. Alternatively, Calpine Thermal may
terminate the agreement upon two years written notice to PG&E. PG&E has the
right to take assignment of Calpine Thermal's facilities on the date of
termination. In such a case, Calpine Thermal would generally continue to pay
offset payments for 36 months following the date of termination.

5. CALPINE GREENLEAF CORPORATION

On April 21, 1995, Calpine Greenleaf acquired the outstanding capital stock
of Portsmouth Leasing Corporation, LFC No. 38 Corp. and LFC No. 60 Corp.
(collectively, the Acquired Companies) from Radnor

F-12
<PAGE> 142

CALPINE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Power Corporation (Radnor) for $80.5 million pursuant to a Share Purchase
Agreement dated March 30, 1995.

The Acquired Companies own 100% of the assets of two 49.5 megawatt natural
gas-fired cogeneration facilities (collectively, the Greenleaf facilities),
Greenleaf Unit One and Greenleaf Unit Two, located in Yuba City in Northern
California. The Greenleaf facilities burn natural gas in the cogeneration of
electrical and thermal energy. The Greenleaf facilities produce electrical power
for sale to PG&E pursuant to two long-term power sales agreements that provide
for electricity payments over an original thirty-year period (expiring in 2019)
at prices equal to PG&E's full short-run avoided operating costs, adjusted
annually. In addition, the Company receives firm capacity payments through 2019
for up to 49.2 megawatts on each unit and as-delivered capacity on excess
deliveries. PG&E, at its discretion, may curtail purchases of electricity from
the Greenleaf facilities due to hydro-spill or uneconomic cost conditions. The
thermal energy generated is used by thermal hosts adjacent to the Greenleaf
facilities. The Greenleaf facilities are qualifying facilities, as defined by
the Public Utility Regulatory Policies Act of 1978, as amended (PURPA).

Natural gas for the Greenleaf facilities is supplied by Montis Niger, Inc.
(MNI) pursuant to a long-term gas purchase agreement, and by Chevron USA
Production Company (Chevron). MNI is a wholly owned subsidiary of LFC Financial
Corporation, the parent company of Radnor. See Note 25 for further information
regarding these agreements.

The acquisition was accounted for as a purchase and the purchase price has
been allocated to the acquired assets and liabilities based on the estimated
fair values of the acquired assets and liabilities as shown below. The
allocation may be adjusted as additional information becomes available (in
thousands):

<TABLE>
<S> <C>
Current assets.................................................... $ 6,572
Property, plant and equipment..................................... 120,752
--------
Total assets.................................................... 127,324
--------
Current liabilities............................................... (944)
Deferred income taxes, net........................................ (45,844)
--------
Total liabilities............................................... (46,788)
--------
Net purchase price................................................ $ 80,536
========
</TABLE>

The purchase price included a cash payment of $20.3 million and the
assumption of project debt totalling $60.2 million. The final purchase price,
which is to be adjusted after the determination of the final net working capital
amount, was determined upon an arms-length transaction between Calpine and
Radnor. The parties are currently in dispute regarding certain provisions of the
Share Purchase Agreement, and the outcome of the dispute may affect the purchase
price.

The $20.3 million cash payment was funded by borrowings from the Credit
Suisse lines of credit described in Note 13 below. The $60.2 million debt
assumed by the Company in the acquisition of the Greenleaf facilities consisted
of $57.6 million of non-recourse long-term project financing payable to Credit
Suisse and $2.6 million of installment payments to individuals. On June 30,
1995, the Company refinanced the Greenleaf project by borrowing $76.0 million
from banks (described in Note 16 below). Net proceeds of $74.9 million were used
to repay $57.5 million of Credit Suisse debt including interest, and $2.9
million of installment and premium payments to individuals. The remaining $14.5
million of net proceeds and $500,000 of internal funds were used to repay the
Credit Suisse line of credit borrowings related to the Greenleaf project.

F-13
<PAGE> 143

CALPINE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Pro forma consolidated results for the Company as if the Greenleaf
acquisition had been consummated on January 1, 1995 and as if the Greenleaf and
TPC acquisitions had been consummated on January 1, 1994, respectively, are (in
thousands, except per share amounts):

<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
(UNAUDITED)
<S> <C> <C>
Revenue.................................................... $137,412 $143,137
Net income................................................. $ 4,868 $ 11,708
Earnings per share......................................... $ 2.20 $ 5.38
</TABLE>

The pro forma information does not purport to be indicative of results that
actually would have occurred had the acquisition been made on the dates
indicated or of results which may occur in the future.

Also in connection with the Greenleaf acquisition, the Company borrowed
$1.9 million on April 21, 1995 against an uncommitted demand loan facility with
The Bank of Nova Scotia to finance the prepayment for natural gas to be
delivered to the Greenleaf facilities from MNI (see Note 13 for further
information).

6. CALPINE MONTEREY COGENERATION, INC.

On June 29, 1995, CMCI acquired a 14.5 year operating lease (through
December 2009) for a 28.5 megawatt natural gas-fired cogeneration power plant
located in Watsonville in Northern California. The Company acquired the
operating lease from Ford Motor Credit Company, acting through its agent, USL
Capital Corporation, for $900,000. The Watsonville plant sells electricity to
PG&E under the terms of a 20-year power sales agreement, generally at prices
equal to PG&E's full short-run avoided operating costs. Basic and contingent
lease rental payments are described in Note 25. As a cogenerator, the plant
provides steam to two local food processing plants, and is a qualifying facility
as defined by PURPA. The Company also provides project and fuels management
services.

In connection with this acquisition, the Company obtained a $5.0 million
uncommitted line of credit with The Bank of Nova Scotia for letters of credit.
On December 31, 1995, the Company had $2.9 million of letters of credit
outstanding (see Note 13 for further information).

7. CALPINE SISKIYOU GEOTHERMAL PARTNERS, L.P.

On August 24, 1994, the Company formed a partnership with Trans-Pacific
Geothermal Glass Mountain, Ltd. (TGGM), an affiliate of Trans-Pacific Geothermal
Corporation of Oakland, California, and is planning to build a geothermal power
generation facility. The power generation facility will be located at Glass
Mountain in Northern California near the Oregon border. The partnership is
consolidated as the Company owns a controlling interest.

8. CALPINE VAPOR, INC.

In November 1995, Calpine Vapor entered into agreements with Constructora y
Perforadora Latina, S.A. de C.V. (Coperlasa) and certain Mexican bank lenders to
Coperlasa in connection with a geothermal steam production contract at the Cerro
Prieto geothermal resource in Baja California, Mexico. The resource currently
produces electricity from geothermal power plants owned and operated by Comision
Federal de Electricidad (CFE), Mexico's national utility. The steam field
contract is between Coperlasa and CFE. Calpine will loan up to $18.5 million to
Coperlasa, and will receive fees for technical services provided to the project.
At December 31, 1995, notes receivable (see Note 12) totaled $4.9 million. In
February 1996, the Company loaned an additional $3.4 million to Coperlasa.

F-14
<PAGE> 144

CALPINE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In December 1995, Calpine Vapor also paid $1.5 million for an option to
purchase an equity interest in Coperlasa. The option expires in May 1997 and is
being amortized over the estimated repayment period of the Coperlasa loan
(through the year 1999) using the interest method, as the Company views the
option as a loan acquisition fee. The unamortized balance of the option is also
included in notes receivable from Coperlasa.

9. ACCOUNTS RECEIVABLE

The Company has both billed and unbilled receivables. The components of
accounts receivable as of December 31, 1995 and 1994 are as follows (in
thousands):

<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Billed........................................................... $18,341 $13,809
Unbilled......................................................... 525 768
Other............................................................ 1,258 10
------- -------
$20,124 $14,587
======= =======
</TABLE>

Other accounts receivable consist primarily of disputed amounts related to
the Greenleaf facilities purchase price (see Note 5).

Accounts receivable from related parties at December 31, 1995 and 1994
include the following (in thousands):

<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
O.L.S. Energy-Agnews, Inc.......................................... $ 806 $ 538
Geothermal Energy Partners, Ltd.................................... 462 793
Sumas Cogeneration Company, L.P.................................... 908 528
Electrowatt and subsidiaries....................................... 1 5
------ ------
$2,177 $1,864
====== ======
</TABLE>

10. ACQUISITION PROJECT RECEIVABLES

On October 17, 1995, in connection with the Company's unsuccessful bid to
acquire O'Brien Environmental Energy, Inc. (OEE) through the U.S. Bankruptcy
Court -- District of New Jersey proceedings, the Company purchased accounts
receivable of $1.9 million, and two notes receivable totaling $3.7 million. The
remaining balance of $3.2 million represents capitalized project acquisition
costs. The recovery of these costs is subject to approval by the U.S. Bankruptcy
Court in 1996.

The Company purchased $1.9 million of accounts receivable from two
cogeneration facilities owned by subsidiaries of OEE. Payments are made to the
Company based on cash availability for each project. In February 1996, the
Company received approximately $1.1 million against these receivables. The
Company currently expects repayment of the balance of these accounts receivable
during 1996.

The Company purchased for $900,000 from Stewart & Stevenson, Inc. (S&S) a
90% participation interest in a $1.0 million note issued by OEE (the O'Brien
Note). Calpine and S&S entered into an agreement in February 1996 whereby S&S
assigned 100% of its interest in the O'Brien Note to Calpine, without any
additional consideration. Interest accrues at approximately 5% after January 20,
1996. The Company currently expects repayment of the note receivable during
1996.

The Company entered into a purchase agreement for all of S&S's rights and
obligations in a Subordinated Loan Agreement dated March 11, 1994 between S&S
and O'Brien (Newark) Cogeneration, Inc. (O'Brien Newark), the Subordinated Note
relating thereto and any related documents and agreements. The purchase price
was $2.8 million and the notes bear interest at prime plus 2.0%. The Company
receives

F-15
<PAGE> 145

CALPINE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

$80,000 per month until the note is fully amortized. As of December 31, 1995,
$2.7 million of principal was receivable bearing interest at 10.5%. Through
February 1996, the Company received $160,000 in payment of this note. The
Company currently expects repayment of the note receivable upon restructuring of
O'Brien Newark debt during 1996.

11. INVESTMENTS IN POWER PROJECTS

As of December 31, 1995, 1994 and 1993, the Company had unconsolidated
investments in power projects which are accounted for under the equity method.
Financial information related to these investments is as follows (in thousands):

<TABLE>
<CAPTION>
SUMAS O.L.S. GEOTHERMAL
COGENERATION ENERGY- ENERGY
COMPANY, AGNEWS, PARTNERS,
1995 L.P.(A) INC. LTD.
---------------------------------------- ------------ ------- ----------
<S> <C> <C> <C> <C>
Operating revenue....................... $ 31,526 $10,779 $ 21,676
Net income (loss)....................... (6,098) (483) 5,538
Assets.................................. 122,802 40,330 76,017
Liabilities............................. 123,377 39,034 51,439
Company's percentage ownership.......... (b) 20% 5%
Equity investments in power projects.... 5,763 314 1,229
Project development costs............... 912 -- --
-------- ------- -------
Total investments in power projects..... $ 6,675 $ 314 $ 1,229
Company's share of net income (loss).... (3,049) (82) 277
-------- ------- -------
</TABLE>

<TABLE>
<CAPTION>
SUMAS O.L.S. GEOTHERMAL
COGENERATION ENERGY- ENERGY
COMPANY, AGNEWS, PARTNERS,
1994 L.P.(A) INC. LTD.
---------------------------------------- ------------ ------- ----------
<S> <C> <C> <C> <C>
Operating revenue....................... $ 32,060 $11,985 $ 21,721
Net income (loss)....................... (5,777) (415) 5,548
Assets.................................. 130,148 42,596 77,081
Liabilities............................. 124,625 40,864 58,041
Company's percentage ownership.......... (b) 20% 5%
Equity investments in power projects.... 8,812 396 952
Project development costs............... 946 8 --
-------- ------- -------
Total investments in power projects..... $ 9,758 $ 404 $ 952
Company's share of net income (loss).... (2,888) (143) 277
-------- ------- -------
</TABLE>

F-16
<PAGE> 146

CALPINE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
SUMAS O.L.S. GEOTHERMAL CALPINE
COGENERATION ENERGY- ENERGY GEYSERS
COMPANY, AGNEWS, PARTNERS, COMPANY,
1993 L.P.(A) INC. LTD. L.P.(C)
---------------------------------------- ------------ ------- ---------- -------
<S> <C> <C> <C> <C>
Operating revenue....................... $ 23,671 $12,485 $ 18,451 $20,759
Net income (loss)....................... (3,739) (931) 1,090 2,689
Assets.................................. 134,579 44,249 74,994 --
Liabilities............................. 123,279 42,249 61,503 --
Company's percentage ownership.......... (b) 20% 5% --
Equity investments in power projects.... 11,700 515 674 --
Project development costs............... 981 17 7 --
-------- ------- ------- -------
Total investments in power projects..... $ 12,681 $ 532 $ 681 $ --
Company's share of net income (loss).... (1,870) (127) 55 1,961
-------- ------- ------- -------
</TABLE>

- ---------------
(a) Commercial operations commenced April 1993 and dry kiln operations commenced
in May 1993.

(b) Distributions will be made out of operating income after certain required
deposits are made and certain minimum balances are met. After receiving
certain preferential distributions, the Company will have a 50% interest in
the profits and losses of Sumas until earning a 24.5% pre-tax cumulative
return on its investment, at which time the Company's interest in Sumas will
be reduced to 11.33%.

(c) 1993 CGC information is for the period from January 1, 1993 to April 19,
1993, the date of the acquisition. Subsequent to April 19, 1993, the
operating results of CGC are included in the accounts of the Company.

Sumas Cogeneration Company, L.P. -- Sumas Cogeneration Company, L P.
(Sumas) is a Delaware limited partnership formed between Sumas Energy, Inc.
(SEI), a Washington State Subchapter S corporation, and Whatcom Cogeneration
Partners, L.P. (Whatcom), a wholly owned partnership of the Company. SEI is the
general partner and Whatcom is the limited partner. Sumas has a wholly owned
Canadian subsidiary, ENCO Gas, Ltd. (ENCO), which is incorporated in New
Brunswick, Canada.

Sumas is the owner and operator of a power generation facility (the
Generation Facility) in Sumas, Washington. The Generation Facility is a natural
gas-fired combined cycle electrical generation plant with a production capacity
of approximately 125 megawatts. In connection with the Generation Facility,
there is a lumber dry kiln facility and a 3.5 mile private natural gas pipeline.
ENCO acquired, developed and is operating a portfolio of proven natural gas
reserves in British Columbia and Alberta, Canada to provide a dedicated fuel
supply for the Generation Facility.

Sumas produces and sells electrical energy to Puget Sound Power & Light
Company (Puget) under a 20-year agreement for approximately 110 megawatts of
power, which was subsequently increased to an average 123 megawatts in 1994.
Sumas leases the dry kiln facility and sells steam to Socco, Inc. (Socco), a
custom lumber drying operation owned by an affiliated individual. Under the kiln
lease and steam sale agreements with Socco, both of which are for 20 years, the
Generating Facility is a qualifying facility as defined by PURPA.

Construction financing was provided through a $95.2 million construction
and term loan agreement with The Prudential Insurance Company of America
(Prudential) and Credit Suisse, an affiliate of the Company. In addition, ENCO
has a $24.8 million loan agreement with Prudential and Credit Suisse. On May 25,
1993, the entire $120.0 million was converted to a term loan. Sumas established
and funded all reserve accounts as required under the terms of the loan
agreements with Prudential and Credit Suisse.

In addition to its interest stated above, the Company has been contracted
by Sumas to provide operations and maintenance services. For these services, the
Company receives a fixed fee of $1.1 million per year

F-17
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CALPINE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

adjusted annually based on the Consumer Price Index, an annual base fee of
$150,000 per year also adjusted based on the Consumer Price Index and certain
other reimbursable expenses. In addition, the Company is entitled to an annual
performance bonus of up to $400,000 based upon the achievement of certain
performance levels. This arrangement will expire upon the date Whatcom receives
its 24.5% pre-tax return or 10 years, subject to renewal terms, whichever is
later. The Company recorded revenue of approximately $2.0 million, $1.9 million
and $1.4 million associated with this arrangement during the years ended
December 31, 1995, 1994 and 1993, respectively.

The Company has also provided construction management services to the Sumas
project. The Company recorded revenue of approximately $72,300 and $934,000
related to construction management services during the years ended December 31,
1994 and 1993, respectively. The Company defers the profit on these contracts,
to the extent of their ultimate ownership percentage, and amortizes it over the
life of the project.

Calpine Geysers Company, L.P. -- In addition to its interest as stated
above, the Company had been contracted by CGC to provide operations and
maintenance services at cost plus overhead and fees. The Company recorded
revenue of approximately $6.8 million associated with this service agreement and
for other services provided to CGC for the period from January 1, 1993 to April
19, 1993.

O.L.S. Energy-Agnews, Inc. -- The Company has a 20% interest in O.L.S.
Energy-Agnews, Inc., a joint venture with GATX Capital Corporation, which owns
and operates a 29 megawatt gas-fired combined-cycle cogeneration facility at the
State-owned Agnews Developmental Center (Center) in San Jose, California. The
cogeneration plant, which commenced operations in December 1990, provides the
Center with all of its thermal and electric requirements. Excess electricity is
sold to PG&E under a Standard Offer No. 4 contract. The Company's original
investment was $1.8 million.

In addition to its interest as stated above, the Company has been
contracted by the joint venture to provide operations and maintenance services
at cost plus overhead and fees, as specified. The Company recorded revenue of
$1.5 million, $1.4 million and $2.3 million associated with this service
agreement and for other services provided to the joint venture for the years
ended December 31, 1995, 1994 and 1993, respectively.

In January 1990, O.L.S Energy-Agnews, Inc. entered into a credit agreement
with Credit Suisse providing for a $28.0 million loan. The loan is secured by
all of the assets of the Agnews Facility and bears interest on the unpaid
principal balance based on the London Interbank Offered Rate (LIBOR) plus a
margin rate varying between 0.05% and 1.5%

Geothermal Energy Partners, Ltd. -- During 1989, the Company acquired a 5%
interest in Geothermal Energy Partners Ltd. (GEP). GEP was established in 1988
to develop, finance and construct a 20 megawatt geothermal power production
facility located in The Geysers area of Northern California. The facility began
operations on June 6, 1989.

In addition to its interest as stated above, the Company has been
contracted by GEP to provide operations and maintenance services at cost plus
overhead and fees, as specified. The Company recorded revenue of $3.5 million,
$3.7 million and $4.5 million associated with this service agreement to GEP for
the years ended December 31, 1995, 1994 and 1993, respectively.

The Company accounts for its investment in GEP under the equity methods
because control of the project is deemed to be shared under the terms of the
partnership agreement and the Company has significant influence over the
operation of the venture.

12. NOTES RECEIVABLE

On May 25, 1993, in accordance with certain provisions of the Sumas
partnership agreement, the Company was entitled to receive a distribution of
$1.5 million. In addition, in accordance with provisions of

F-18
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CALPINE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the Sumas partnership agreement, SEI was required to make a capital contribution
of $1.5 million. In order to meet SEI's $1.5 million capital contribution
requirement, the Company loaned $1.5 million to the sole shareholder of SEI, who
in turn loaned the funds to SEI, who in turn contributed the capital to Sumas.
The loan bears interest at 20% and is secured by a security interest in the loan
between SEI and its sole shareholder. The Company will receive payments of 50%
of SEI's cash distributions from Sumas. The payments will first reduce any
accrued and unpaid interest and then reduce the principal balance. On May 25,
2003, all unpaid principal and interest is due. The Company is deferring the
recognition of interest income from this note until Sumas generates net income.

On March 15, 1994, the Company completed a $10.0 million loan to the sole
shareholder of SEI, the Company's partner in Sumas. The loan matures in 10 years
and bears interest at 16.25%. The loan is secured by a pledge to Calpine of the
partner's interest in Sumas. In order to provide for the payment of principal
and interest on the loan, an additional 25% of the cash flow generated by Sumas,
estimated to begin in 1996, has been assigned to Calpine. The Company is
deferring the recognition of interest income from this note until Sumas
generates net income.

On August 25, 1994, the Company entered into a loan agreement providing for
loans up to $4.8 million to TGGM (see Note 7). The loan bears interest at 10%
and has a maturity date which is based on certain future events. Based on
current forecasts, the maturity date will be in the year 2022. The loan is
secured by a pledge to Calpine of the partner's interest in the project. The
Company is deferring the recognition of income from this note until the Glass
Mountain project generates sufficient income to support collectibility of
interest earned. As of December 31, 1995, $3.8 million was outstanding.

As of December 31, 1995, Calpine Vapor had notes receivable of $4.9 million
and unamortized loan acquisition fees of $1.5 million from Coperlasa (see Note
8). Interest accrues on the $4.9 million of outstanding notes receivable at
approximately 18.8% and is due semi-annually. Principal payments in six equal
installments are due beginning in May 1997 through November 1999. In January
1996, the Company loaned an additional $3.4 million to Coperlasa. The fair value
of the notes receivable approximates its carrying value since the loan was
entered into near the end of 1995.

13. REVOLVING CREDIT FACILITY AND LINES OF CREDIT

At December 31, 1995, the line of credit with Credit Suisse (whose parent
company owns approximately 44.9% of Electrowatt) provided for advances of $50.0
million. Interest may be paid at either LIBOR or the Credit Suisse base rate,
plus applicable margins in both cases. At December 31, 1995, the Company had
$19.9 million of borrowings outstanding, bearing interest at LIBOR plus 0.5%
(6.4% at December 31, 1995). At the Company's discretion, the debt outstanding
can be held for various maturity periods of up to six months. Interest is paid
on the last day of each interest period for such loans, but not less often than
quarterly, based on the principal amount outstanding during the period. No
stated amortization exists for this indebtedness. From January 1 to March 13,
1996, the Company borrowed an additional $8.8 million and issued a letter of
credit for $3.0 million to fund an additional loan to Coperlasa (see Note 8) and
other developmental project and working capital requirements. No borrowings were
outstanding at December 31, 1994. The credit agreement specifies that the
Company maintain certain covenants with which the Company was in compliance.

At December 31, 1995, the Company had three loan facilities with available
borrowings totaling $10.2 million. Borrowings and letters of credit outstanding
were $1.2 million and $3.8 million as of December 31, 1995, respectively, with
interest payable at variable interest rates based on bank base rates, LIBOR or
prime plus applicable margins in all cases (approximately 7.6% at December 31,
1995 on borrowings). At December 31, 1994, no borrowings and $900,000 of letters
of credit were outstanding on these facilities. The credit agreements specify
that the Company maintain certain covenants with which the Company was in
compliance.

F-19
<PAGE> 149

CALPINE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

14. WORKING CAPITAL LOAN

The Company has a $5.0 million working capital loan agreement with a bank
providing for advances and letters of credit. The aggregate unpaid principal of
the working capital loan is payable in full at least once a year, with the final
payment of principal, interest and fees due June 30, 1998. Interest on
borrowings accrues at the option of the Company at either a base rate, LIBOR, or
a certificate of deposit rate (plus applicable margins in all cases) over the
term of the loan. No borrowings were outstanding at December 31, 1995. At
December 31, 1994, $4.5 million was outstanding under the working capital
agreement, with interest at 7.625%. The Company had letters of credit
outstanding of $459,000 at December 31, 1995 and 1994. Outstanding letters of
credit bear interest at 0.625% payable quarterly.

15. NOTE PAYABLE TO SHAREHOLDER

On December 31, 1991, the Company declared a dividend of $1.2 million to
its parent company, Electrowatt Services, Inc. On the same date, the Company
issued a note payable to Electrowatt Services, Inc. for $1.2 million. Interest
was paid quarterly at a rate of 4.25%, which approximated market. The note was
paid on June 30, 1994, the maturity date.

16. NON-RECOURSE PROJECT FINANCING

The components of non-recourse project financing as of December 31, 1995
and 1994 are (in thousands):

<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Senior-term loans
Fixed rate portion............................................. $ 99,400 $116,800
Variable rate portion.......................................... 20,000 20,000
Premium on debt................................................ 2,959 4,341
-------- --------
Total senior-term loans................................ 122,359 141,141
Junior-term loans................................................ 19,965 19,965
Notes payable to banks........................................... 133,026 58,500
-------- --------
Total long-term debt................................... 275,350 219,606
Less current portion................................... 84,708 22,800
-------- --------
Long-term debt, less current portion................... $190,642 $196,806
======== ========
</TABLE>

Senior-Term Loans -- Principal and interest are payable in quarterly
installments at variable amounts with the final payment of principal, interest
and fees due June 30, 2002. A portion of the senior-term loans bears interest
fixed at 9.93% (see discussion on swap agreement below) with the remainder
accruing interest at LIBOR plus 0.75% to 1.25% (6.69% and 7.25% at December 31,
1995 and 1994, respectively) over the term of the loan, collateralized by all of
CGC's assets and the Company's interest in CGC. In connection with the
acquisition of CGC's assets in 1993, the Company recorded a premium on the fixed
rate portion of the senior-term loans reflecting the fixed rate in excess of
market. The premium is amortized over the life of the fixed rate portion of the
loan using the interest method, and the unamortized balance is included in
long-term debt outstanding.

On January 2, 1996, $5.4 million of principal was repaid, and $2.5 million
of interest calculated through January 1, 1996 was paid.

Junior-Term Loans -- Principal and interest are payable in quarterly
installments at variable amounts beginning September 30, 2002 with the final
payment of principal, interest and fees due June 30, 2005; interest accrues at
LIBOR plus 1.5% to 2.75% (7.69% and 8.5% at December 31, 1995 and 1994,
respectively) over the term of the loan, collateralized by all of CGC's assets
and the Company's interest in CGC.

F-20
<PAGE> 150

CALPINE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company entered into two interest rate swap agreements to minimize the
impact of changes in interest rates on a portion of its senior-term loans. These
agreements, with a commercial bank and a financing company, effectively fix the
interest on this portion at 9.93%. The Company records the fixed rate interest
as interest expense. At December 31, 1995, the swap agreements were applicable
to debt with a principal balance total of $99.4 million. The interest rate swap
agreements mature through December 31, 2000. The premium on debt was recorded in
conjunction with the acquisition as discussed above. The premium effectively
adjusts the recognized interest rate on the fixed-rate debt to 7.05% per annum.
The floating interest rate associated with this portion of the senior-term loans
was LIBOR plus 1.0% (6.99%) at December 31, 1995 and LIBOR plus 0.75% (7.25%) at
December 31, 1994. The Company is exposed to credit risk in the event of non-
performance by the other parties to the agreements.

Notes Payable to Banks -- On September 9, 1994, the Company entered into a
two-year agreement with The Bank of Nova Scotia to finance the acquisition of
TPC. As of December 31, 1995, the Company had $57.0 million of non-recourse
project financing outstanding under this agreement. This indebtedness is secured
by TPC's interest in The Geysers steam field assets. Among other restrictions,
TPC is required to maintain an interest coverage ratio of at least 2.5 to 1.0,
and to maintain a loan to value ratio (as defined) of no more than 0.7 to 1.0.
At the Company's discretion, the debt outstanding can be held for various
maturity periods of at least 30 days up to the final maturity date, September 9,
1996. The entire outstanding balance bears interest at variable rates currently
based on LIBOR plus 1% (averaging 6.9% as of December 31, 1995). Interest is
paid on each maturity date, but not less often than quarterly, based on the
principal amount outstanding during the period. No stated principal amortization
exists for this indebtedness. The Company may elect to repay principal at any
time. All unpaid principal is due and payable on September 9, 1996. The Company
currently intends to refinance the $57.0 million of debt before September 9,
1996.

On June 26, 1995, the Company entered into an agreement with Sumitomo Bank
to finance the acquisition of the Greenleaf facilities. Of the $76.0 million
debt outstanding at December 31, 1995, $60.0 million bears interest fixed at
7.4%, with the remaining floating rate portion accruing interest at LIBOR plus
an applicable margin (6.5% as of December 31, 1995). This debt is secured by all
of the assets of Greenleaf Unit One and Greenleaf Unit Two. Interest on the
floating rate portion may be at Sumitomo's base rate plus an applicable margin
or at LIBOR plus an applicable margin. Interest on base rate loans is paid at
the end of each calendar quarter, and interest on LIBOR based loans is paid on
each maturity date, but not less often than quarterly, based on the principal
amount outstanding during the period. At the Company's discretion, the LIBOR
based loans may be held for various maturity periods of at least 1 month up to
12 months. The $76.0 million debt will be repaid quarterly, with a final
maturity date of December 31, 2010.

The annual principal maturities of the non-recourse long-term debt
outstanding at December 31, 1995 are as follows (in thousands):

<TABLE>
<S> <C>
1996.............................................................. $ 84,708
1997.............................................................. 24,772
1998.............................................................. 25,993
1999.............................................................. 18,733
2000.............................................................. 17,991
Thereafter........................................................ 100,194
--------
272,391
Unamortized premium on fixed portion of senior loan............... 2,959
--------
Total................................................... $275,350
========
</TABLE>

The carrying value of $99.4 million and $116.8 million of the senior-term
loan as of December 31, 1995 and 1994, respectively, has an effective rate of
9.93% under the Company's interest rate swap agreements

F-21
<PAGE> 151

CALPINE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(7.05% after consideration of the debt premium). Based on the borrowing rates
currently available to the Company for bank loans with similar terms and
maturities, the fair value of the debt as of December 31, 1995 and 1994 is
approximately $107.3 million and $120.0 million, respectively. The carrying
value of the remaining $20.0 million of the senior and the $20.0 million
junior-term loans and the long-term notes payable to banks approximates the
debt's fair market value as the rates are variable and based on the current
LIBOR rate.

The non-recourse long-term debt is held by subsidiaries of Calpine. The
debt agreements of the Company's subsidiaries and other affiliates governing the
non-recourse project financing generally restrict their ability to pay
dividends, make distributions or otherwise transfer funds to the Company. The
dividend restrictions in such agreements generally require that, prior to the
payment of dividends, distributions or other transfers, the subsidiary or other
affiliate must provide for the payment of other obligations, including operating
expenses, debt service and reserves.

17. LONG-TERM NOTES PAYABLE

At December 31, 1995, the Company had a non-interest bearing promissory
note for $6.5 million payable to Natomas Energy Company, a wholly owned
subsidiary of Maxus Energy Company. This note has been discounted to yield 8.0%
per annum, due September 9, 1997. The carrying amount of $5.7 million at
December 31, 1995 approximates fair market value.

In January 1995, the Company purchased the working interest covering
certain properties in its geothermal properties at CGC from Santa Fe Geothermal,
Inc. The purchase price included $6.0 million cash, and a $750,000 non-interest
bearing note discounted to yield 9% per annum and due on December 26, 1997. The
Company may repay all or any part of the note at any time without penalty. The
carrying value of $627,000 of the discounted non-interest bearing note at
December 31, 1995 approximates fair market value.

18. SENIOR NOTES DUE 2004

On February 17, 1994, the Company completed a $105.0 million public debt
offering of 9 1/4% Senior Notes Due 2004 (Senior Notes). The net proceeds of
$100.9 million were used to repay all of the indebtedness outstanding under the
Company's existing line of credit, and to repay the non-recourse notes payable
to FMRP plus accrued interest (see Note 3). The remaining proceeds were used for
general corporate purposes, including the loan to the sole shareholder of SEI
discussed in Note 12. The transaction costs of $4.1 million incurred in
connection with the public debt offering were recorded as a deferred charge and
are amortized over the ten-year life of the Senior Notes using the interest
method.

The Senior Notes will mature on February 1, 2004 and bear interest at
9 1/4% payable semiannually on February 1 and August 1 of each year, commencing
August 1, 1994, to holders of record. Based on the traded yield to maturity, the
approximate fair market value of the Senior Notes was $97.0 million as of
December 31, 1995. The agreement specifies that the Company maintain certain
covenants with which the Company was in compliance.

Under provisions of the indenture applicable to the Senior Notes, the
Company may, under certain circumstances, be limited in its ability to make
restricted payments, as defined, which include dividends and certain purchases
and investments, incur additional indebtedness and engage in certain
transactions.

19. PROVISION FOR INCOME TAXES

Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standard No. 109 Accounting for Income Taxes (SFAS No. 109) and
recorded $413,000 as the cumulative effect of adoption in the accompanying
financial statements. SFAS No. 109 requires that the Company follow the
liability method of accounting for income taxes whereby deferred income taxes
are recognized for the tax consequences of

F-22
<PAGE> 152

CALPINE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

"temporary differences" to the extent they are not reduced by net operating loss
and tax credit carryforwards by applying enacted statutory rates.

The components of the deferred tax liability as of December 31, 1995 and
1994 are (in thousands):

<TABLE>
<CAPTION>
1995 1994
--------- --------
<S> <C> <C>
Deferred state income taxes................................... $ 256 $ 1,389
Expenses deductible in a future period........................ 1,865 1,536
Net operating loss and credit carryforwards................... 19,797 15,566
Other differences............................................. 2,034 1,129
--------- --------
Deferred tax asset, before valuation allowance.............. 23,952 19,620
Valuation allowance........................................... (749) (749)
--------- --------
Deferred tax asset.......................................... 23,203 18,871
--------- --------
Property differences.......................................... (116,763) (66,552)
Difference in taxable income and income from investments
recorded on the equity method............................... (2,311) (2,119)
Other differences............................................. (1,750) (1,128)
--------- --------
Deferred tax liabilities.................................... (120,824) (69,799)
--------- --------
Net deferred tax liability............................... $ (97,621) $(50,928)
========= ========
</TABLE>

The net operating loss and credit carryforwards consist of Federal and
State net operating loss carryforwards which expire 2005 through 2010 and 1999,
respectively, and Federal and State alternative minimum tax credit carryforwards
which can be carried forward indefinitely. During 1991, the State of California
suspended the usage of net operating loss carryforwards available to reduce
taxable income for 1992 and 1991. In September 1993, the State of California
removed the suspension on utilization of net operating loss carryforwards,
although they can only be carried forward five years. Fifty percent of the State
net operating loss carryforwards are available to reduce future taxable income.
During 1993, the Company increased the tax provision by approximately $700,000
as a result of the change in the California State Tax regulations. At December
31, 1995, Federal and State net operating loss carryforwards were approximately
$41.8 million and $7.2 million, respectively. At December 31, 1995 the State net
operating losses have been fully reserved for in the valuation allowance due to
the limited carryforward period allowed by the State of California. At December
31, 1995, Federal and State alternative minimum tax carryforwards were
approximately $3.2 million and $1.6 million, respectively.

Realization of the deferred tax assets and federal net operating loss
carryforwards is dependent on generating sufficient taxable income prior to
expiration of the loss carryforwards. Although realization is not assured,
management believes it is more likely than not that all of the deferred tax
asset will be realized based on estimates of future taxable income. The amount
of the deferred tax asset considered realizable, however, could be reduced in
the near term if estimates of future taxable income during the carryforward
period are reduced.

F-23
<PAGE> 153

CALPINE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The provision for income taxes for the years ended December 31, 1995, 1994
and 1993 consists of the following (in thousands):

<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Current
Federal................................................ $3,085 $ 96 $ --
State.................................................. 1,163 365 11
Deferred
Federal, excluding items listed below.................. 816 2,546 2,581
Adjustment in federal tax rate...................... -- -- 88
State, excluding items listed below.................... (15) 547 1,250
Utilization of net operating loss carryforwards..... -- -- (192)
Increase in valuation allowance..................... -- 299 457
------ ------ ------
Total provision................................ $5,049 $3,853 $4,195
====== ====== ======
</TABLE>

The Company's effective rate for income taxes for the years ended December
31, 1995, 1994 and 1993 differs from the U.S. statutory rate for the same
periods due to state income taxes, depletion allowances and the limitation on
use of state net operating loss carryforwards discussed above, as reflected in
the following reconciliation.

<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
U.S. statutory tax rate........................................ 35.0% 35.0% 35.0%
State income tax, net of Federal benefit....................... 6.0 6.0 8.1
Depletion allowance............................................ (0.3) (8.6) --
Adjustment to deferred for change in tax rates................. -- -- 1.0
Utilization of state net operating loss carryforward........... -- -- (2.3)
Other, net..................................................... (0.1) (1.2) 2.9
Increase in valuation allowance................................ -- 7.8 5.5
---- ---- ----
Effective income tax rate................................. 40.6% 39.0% 50.2%
==== ==== ====
</TABLE>

20. RETIREMENT SAVINGS PLAN

The Company has a defined contribution savings plan under Section 401(a)
and 501(a) of the Internal Revenue Code. The plan provides for tax deferred
salary deductions and after-tax employee contributions. Employees automatically
become participants on the first quarterly entry date after completion of three
months of service. Contributions include employee salary deferral contributions
and a 3% employer profit-sharing contribution. Employer profit-sharing
contributions in 1995, 1994 and 1993 totaled $350,000, $311,000 and $293,000,
respectively.

21. COMMON STOCK

The Company has Class A and Class B common stock. Each class of common
stock fully participates in any dividends declared. Although Class A
shareholders are precluded from receiving stock dividends of Class B common
stock, Class B shares are convertible into Class A shares on a share-for-share
basis at the option of the holder. Each share of Class A common stock is
entitled to one vote per share, and each share of Class B common stock is
entitled to ten votes per share.

As of December 31, 1995, no shares of Class A common stock were
outstanding, and 2,000,000 shares of Class B common stock were outstanding. All
of the Class B shares are held by Electrowatt.

F-24
<PAGE> 154

CALPINE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

22. STOCK OPTION PROGRAM

The Company adopted a Stock Option Program effective December 31, 1992.
Under the plan, the Board of Directors may grant non-qualified stock options to
officers and other senior employees of the Company, not to exceed 35
participants, to purchase Class A common stock of the Company. The plan is
administered by a committee of the Board of Directors. The committee determines
the timing of awards, individuals to be granted awards, the number of options to
be awarded, and the price, term, vesting schedule and other conditions of the
options. The Company has reserved a total of 500,000 Class A common shares for
issuance under the plan.

Options outstanding to officers and other senior employees are:

<TABLE>
<CAPTION>
GRANT OPTIONS PER EXPIRATION
DATE OUTSTANDING SHARE DATE
------------------------------------------- ----------- ------ -----------------
<S> <C> <C> <C>
December 31, 1992.......................... 180,000 $ 2.60 December 31, 2002
April 1, 1993.............................. 34,500 $ 9.62 April 1, 2003
October 1, 1994............................ 57,000 $23.74 October 1, 2004
January 1, 1995............................ 80,550 $25.48 January 1, 2005
June 16, 1995.............................. 5,000 $25.48 June 16, 2005
-------
357,050
=======
</TABLE>

The options were granted at fair value as determined by the Board of
Directors based, in part or in whole, on the most recent applicable independent
appraisal. The options granted on December 31, 1992 were fully exercisable on
the date of grant. The options granted in 1993 and 1994 were vested 25% at the
date of issuance with the balance vesting equally over a three-year period. The
options granted on January 1, 1995 vest equally over a four-year period
beginning on January 1, 1996. The options granted on June 16, 1995 vest 50% on
June 16, 1997 and 50% on June 16, 1999. The number of options exercisable at
December 31, 1995 totaled 234,375. No options have been exercised to date.

23. RELATED PARTY TRANSACTIONS

In January 1995, the Company and Electrowatt entered into a management
services agreement whereby Electrowatt agreed to provide the Company with
advisory services in connection with the construction, financing, acquisition
and development of power projects, as well as any other advisory services as may
be required by the Company in connection with the operation of the Company. The
Company currently pays Electrowatt $200,000 per year for all services rendered
under the management services agreement. The management services agreement
terminates in January 1998.

During 1995, 1994 and 1993, the Company paid $106,000, $69,000 and
$474,000, respectively, to Electrowatt pursuant to a guarantee fee agreement
whereby Electrowatt agreed to guarantee the payment, when due, of any and all
indebtedness of the Company to Credit Suisse in accordance with the terms and
conditions of the line of credit. Under the guarantee fee agreement, the Company
has agreed to pay to Electrowatt an annual fee equal to 1% of the average
outstanding balance of the Company's indebtedness to Credit Suisse during each
quarter as compensation for all services rendered under the guarantee fee
agreement. The guarantee fee agreement terminates in January 1998.

24. SIGNIFICANT CUSTOMERS

The Company's electricity and steam sales revenue is primarily from two
sources -- PG&E and SMUD. During 1994, the Company entered into a three-year
agreement to sell 5 megawatts of electricity to Northern California Power Agency
(NCPA). The Company terminated this agreement on December 31, 1994.

F-25
<PAGE> 155

CALPINE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Revenues earned from these sources for the years ended December 31, 1995 and
1994 and for the period from April 19, 1993 to December 31, 1993 were (in
thousands):

<TABLE>
<CAPTION>
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
PG&E................................................. $112,522 $77,010 $45,819
SMUD................................................. 12,345 9,296 9,014
NCPA................................................. -- 804 --
Other................................................ 173 -- --
-------- ------- -------
125,040 87,110 54,833
Revenues recognized (deferred) (see Note 2).......... 2,759 3,185 (1,833)
-------- ------- -------
Total electricity and steam sales.................... $127,799 $90,295 $53,000
======== ======= =======
</TABLE>

See Note 25 regarding CPUC Restructuring.

25. COMMITMENTS AND CONTINGENCIES

Capital Projects -- The Company has 1996 commitments for capital
expenditures totaling $6.8 million related to various projects at its geothermal
facilities. In March 1996, the Company entered into an energy development
agreement with Phillips Petroleum Company to develop, construct, own and operate
a 240 megawatt gas-fired cogeneration facility at Phillips Houston Chemical
Complex in Pasadena, Texas. The initial permitting process is underway, with
construction of the facility planned to begin in late 1996 and to be completed
in 1998. The Company is currently evaluating options to finance the construction
of this facility. The Company issued a $3.0 million letter of credit and has a
1996 capital commitment of $3.0 million in connection with this facility. In a
separate transaction, as of March 15, 1996, the Company was negotiating the
potential acquisition of an operating lease for a 120 megawatt gas-fired
cogeneration facility located in Northern California.

Royalties and Leases -- The Company is committed under several geothermal
leases and right-of-way, easement and surface agreements. The geothermal leases
generally provide for royalties based on production revenue, with reductions for
property taxes paid, and the right-of-way, easement and surface agreements are
based on flat rates and are not material. Under the terms of certain geothermal
leases, royalties accrue at rates ranging from 7% to 12.5% of steam and effluent
revenue. Certain properties also have net profits and overriding royalty
interests ranging from approximately 1.45% to 28%, which are in addition to the
land royalties. Most lease agreements contain clauses providing for minimum
lease payments to lessors if production temporarily ceases or if production
falls below a specified level.

The Company also has working interest agreements with third parties
providing for the sharing of approximately 25% to 30% of drilling and other well
costs, various percentages of other operating costs and 25% to 30% of revenues
on specified wells.

Expenses under these agreements for the years ended December 31, 1995 and
1994 and for the period from April 19,1993 to December 31, 1993, are (in
thousands):

<TABLE>
<CAPTION>
1995 1994 1993
------- ------- ------
<S> <C> <C> <C>
Production royalties................................... $10,574 $11,153 $6,814
Lease payments......................................... $ 225 $ 252 $ 172
</TABLE>

Natural Gas Purchases -- Natural gas for the Greenleaf facilities is
supplied by MNI pursuant to a long-term gas purchase agreement. Under the terms
of the gas purchase agreement, MNI may nominate on a monthly basis to provide
firm gas deliveries from certain specified wells. If MNI is unable to deliver
the nominated quantity of gas from its reserves, MNI must purchase and deliver
sufficient gas at no additional cost to the Company. The Company is committed to
purchase gas at the forecasted weighted average

F-26
<PAGE> 156

CALPINE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

incremental cost per decatherm of gas procured by PG&E at the California border,
adjusted annually to actual cost. The fuel purchase agreement may be terminated
by the Company under specified contract conditions, or upon disbursement of
contract suspension payments.

The Company is committed to purchase and receive natural gas from Chevron
in an amount sufficient to satisfy the requirements of the Greenleaf facilities,
in excess of the nominated quantity supplied by MNI. If MNI supplies less than
the nominated quantity, Chevron shall supply the volumes of natural gas
constituting the difference between the volumes of gas delivered by MNI and the
nominated volumes (make-up gas). Chevron will have the option to be the
exclusive provider of make-up gas if Chevron agrees to sell at a price less than
or equal to 100% of the average gas rate at the burner tip for utility electric
generation as posted by PG&E for the month of delivery. If MNI supplies volumes
of gas greater than its nomination, Chevron will reduce its deliveries in a
corresponding amount. The gas supply agreement is effective through June 30,
1996, continuing month to month thereafter unless either party terminates the
agreement upon sixty days written notice.

Watsonville Operating Lease -- The Company is committed under an operating
lease (through December 2009) for a 28.5 megawatt natural gas-fired cogeneration
power plant located in Watsonville, California (see Note 6). Under the terms of
the lease, basic and contingent rents are payable each month during the period
from July through December. As of December 31, 1995, future basic rent payments
are $2.9 million for each year from 1996 to 2000, and $27.3 million thereafter
through December 2009. Contingent rent payments are based on the net of revenues
less all operating expenses, fees, reserve requirements, basic rent and
supplemental rent payments. Of the remaining balance, 60% is payable to the
lessor and 40% is payable to the Company.

Office and Equipment Leases -- The Company leases its corporate office,
Santa Rosa office facilities and certain office equipment under noncancellable
operating leases expiring through 2000. Future minimum lease payments under
these leases are (in thousands):

<TABLE>
<S> <C>
1996................................................................ $ 899
1997................................................................ 905
1998................................................................ 907
1999................................................................ 776
2000................................................................ 745
thereafter.......................................................... 286
-----
Total future minimum lease commitments.............................. $4,518
=====
</TABLE>

Lease payments are subject to adjustment for the Company's pro rata portion
of annual increases or decreases in building operating costs. In 1995, 1994 and
1993, rent expense for noncancellable operating leases amounted to $733,000,
$663,000 and $636,000, respectively.

CPUC Restructuring -- Electricity and steam sales agreements with PG&E are
regulated by the California Public Utilities Commission (CPUC). In December
1995, the CPUC proposed the transition of the electric generation market to a
competitive market beginning January 1, 1998, with all consumers participating
by 2003. The proposed restructuring provides for phased-in customer choice,
development of non-discriminatory market structure, recovery of utilities'
stranded costs, sanctity of existing contracts, and continuation of existing
public policy programs including the promotion of fuel diversity through a
renewable energy purchase requirement.

F-27
<PAGE> 157

CALPINE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the new market structure no later than January 1, 1998. There can be no
assurance that the proposed restructuring will be enacted in substantially the
same form as discussed above. The Company is unable to predict the ultimate
outcome of the restructuring.

Litigation -- The Company, together with over 100 other parties, was named
as a defendant in the second amended complaint in an action brought in August
1993 by the bankruptcy trustee for Bonneville Pacific Corporation (Bonneville),
captioned Roger G. Segal, as the Chapter 11 Trustee for Bonneville Pacific
Corporation v. Portland General Corporation, et al., in the United States
District Court for the District of Utah. This complaint alleges that, in
conjunction with top executives of Bonneville and with the alleged assistance of
the other 100 defendants, the Company engaged in a broad conspiracy and fraud.
The complaint has been amended a number of times. The Company has answered each
version of the complaint by denying all claims and is in the process of
conducting discovery. In August 1994, the Company successfully moved for an
order severing the trustee's claim against the Company from the claims against
the other defendants. Although the case involves over 25 separate financial
transactions entered into by Bonneville, the severed case concerns the Company
in respect of only one of these transactions. In 1988, the Company invested $2.0
million in a partnership formed with Bonneville to develop four hydroelectric
projects in the State of Hawaii. The projects were not successfully developed by
the partnership, and, subsequent to Bonneville's Chapter 11 filing, the Company
filed a claim as a creditor against Bonneville's bankruptcy estate. The trustee
alleges that the equity investment was actually a "sham" loan designed to
inflate Bonneville's earnings. The trustee further alleges that Calpine is one
of many defendants in this case responsible for Bonneville's insolvency and the
amount of damages attributable to the Company based on the $2.0 million
partnership investment is alleged to be $577.2 million. The trustee is seeking
to hold each of the other defendants liable for a portion, all or, in certain
cases, more than this amount. The Company expects the matter will be set for
trial in 1996. The Company believes the claims against it are without merit and
will continue to defend the action vigorously. The Company further believes that
the resolution of this matter will not have a material adverse effect on its
financial position or results of operations.

ENCO terminated protracted contract negotiations with two Canadian natural
gas suppliers in January 1995. One of the suppliers notified ENCO it considered
a draft contract to be effective although it had not been executed by ENCO. The
supplier indicated it may pursue legal action if ENCO would not execute the
contract. As of March 15, 1996, no legal action has been served on ENCO.
Management believes if legal action is commenced, ENCO has significant defenses
and believes such action will not result in any material adverse impact to the
Company's financial condition or results of operations.

F-28
<PAGE> 158

CALPINE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31,
1995
MARCH ------------
31,
1996
--------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 68,647 $ 21,810
Accounts receivable................................................ 17,522 20,124
Acquisition project receivables.................................... 8,114 8,805
Other current assets............................................... 4,900 5,491
-------- --------
Total current assets....................................... 99,183 56,230
Property, plant and equipment, net................................... 448,261 447,751
Investments in power projects........................................ 12,206 8,218
Notes receivable from related parties................................ 20,006 19,391
Notes receivable from Coperlasa...................................... 11,264 6,094
Restricted cash...................................................... 8,526 9,627
Deferred charges and other assets.................................... 5,903 7,220
-------- --------
Total assets............................................... $605,349 $554,531
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current non-recourse long-term project financing................... $ 83,846 $ 84,708
Notes payable to bank and short-term borrowings.................... 969 1,177
Accounts payable................................................... 6,877 6,876
Accrued payroll and related expenses............................... 1,892 2,789
Accrued interest payable........................................... 4,328 7,050
Other accrued expenses............................................. 2,282 2,657
-------- --------
Total current liabilities.................................. 100,194 105,257
Long-term line of credit............................................. 32,151 19,851
Non-recourse long-term project financing, less current portion....... 185,798 190,642
Notes payable........................................................ 6,473 6,348
Senior Notes Due 2004................................................ 105,000 105,000
Deferred income taxes, net........................................... 97,164 97,621
Other liabilities.................................................... 3,636 4,585
-------- --------
Total liabilities.......................................... 530,416 529,304
-------- --------
Shareholder's equity
Preferred stock.................................................... 50,000 --
Common stock....................................................... 6,224 6,224
Retained earnings.................................................. 18,709 19,003
-------- --------
Total shareholder's equity................................. 74,933 25,227
-------- --------
Total liabilities and shareholder's equity................. $605,349 $554,531
======== ========
</TABLE>

The accompanying notes are an integral part of these condensed consolidated
financial statements.

F-29
<PAGE> 159

CALPINE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1996 1995
-------- --------
<S> <C> <C>
Revenue:
Electricity and steam sales........................................ $ 25,775 $ 21,103
Service contract revenue from related parties...................... 2,012 1,523
Service revenue from others........................................ 574 --
Income (loss) from unconsolidated investments in power projects.... 1,415 (616)
Interest income on loans to power projects......................... 1,897 --
-------- --------
Total revenue.............................................. 31,673 22,010
-------- --------
Cost of revenue:
Plant operating expenses, depreciation, operating lease expense and
production royalties............................................ 19,472 12,281
Service contract expenses and other................................ 1,857 1,111
-------- --------
Total cost of revenue...................................... 21,329 13,392
-------- --------
Gross profit......................................................... 10,344 8,618
Project development expenses......................................... 516 501
General and administrative expenses.................................. 2,640 1,545
-------- --------
Income from operations..................................... 7,188 6,572
Other (income) expense:
Interest expense................................................... 8,219 6,931
Other income, net.................................................. (533) (459)
-------- --------
Income before provision for income taxes................... (498) 100
Provision for (benefit from) income taxes............................ (204) 41
-------- --------
Net income................................................. $ (294) $ 59
======== ========
Weighted average shares outstanding.................................. 2,000 2,190
======== ========
Earnings per share................................................... $ (0.15) $ 0.03
======== ========
</TABLE>

The accompanying notes are an integral part of these condensed consolidated
financial statements.

F-30
<PAGE> 160

CALPINE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1996 1995
------- -------
<S> <C> <C>
Net cash provided by (used for) operating activities..................... $(2,216) $ 4,443
------- -------
Cash flows from investing activities:
Acquisition of property, plant and equipment........................... (7,261) (8,071)
Deposit for King City transaction...................................... (1,000) --
Investments in power projects and capitalized costs.................... (459) (502)
Increase in notes receivable from related party........................ -- (250)
Decrease in restricted cash............................................ 1,101 2,902
Other, net............................................................. (20) 5
------- -------
Net cash used in investing activities............................... (7,639) (5,916)
------- -------
Cash flows from financing activities:
Borrowings from line of credit......................................... 12,300 --
Repayment of line of credit............................................ (208) --
Repayment of non-recourse project financing............................ (5,400) (9,900)
Proceeds from issuance of preferred stock.............................. 50,000 --
Repayment of working capital loan...................................... -- (4,000)
Financing costs........................................................ -- (82)
------- -------
Net cash provided by (used for) financing activities................ 56,692 (13,982)
------- -------
Net increase (decrease) in cash and cash equivalents..................... 46,837 (15,455)
Cash and cash equivalents, beginning of period........................... 21,810 22,527
------- -------
Cash and cash equivalents, end of period................................. $68,647 $ 7,072
======= =======
Supplementary information:
Cash paid during the period for:
Interest............................................................ $10,951 $10,812
Income taxes........................................................ $ -- $ 125
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-31
<PAGE> 161

CALPINE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996

1. ORGANIZATION AND OPERATION OF THE COMPANY

Calpine Corporation (Calpine), a California corporation, and subsidiaries
(collectively, the Company) are engaged in the development, acquisition,
ownership and operation of power generation facilities in the United States. The
Company has ownership interests in and operates geothermal steam fields,
geothermal power generation facilities, and natural gas-fired cogeneration
facilities in Northern California and Washington. Each of the generation
facilities produces electricity for sale to utilities. Thermal energy produced
by the gas-fired cogeneration facilities is sold to governmental and industrial
users, and steam produced by the geothermal steam fields is sold to
utility-owned power plants. Founded in 1984, the Company is wholly owned by
Electrowatt Services, Inc., which is wholly owned by Electrowatt Ltd
(Electrowatt), a Swiss company. The Company has expertise in the areas of
engineering, finance, construction and plant operations and maintenance.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Interim Presentation

The accompanying interim condensed consolidated financial statements of the
Company have been prepared by the Company, without audit by independent public
accountants, pursuant to the rules and regulations of the Securities and
Exchange Commission. In the opinion of management, the condensed consolidated
financial statements include all and only normal recurring adjustments necessary
to present fairly the information required to be set forth therein. Certain
information and note disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted from these statements pursuant to such rules and
regulations and, accordingly, should be read in conjunction with the audited
consolidated financial statements of the Company included in the Company's
annual report on Form 10-K for the year ended December 31, 1995. The results for
interim periods are not necessarily indicative of the results for the entire
year.

Earnings Per Share

Earnings per share are calculated using the weighted average number of
shares outstanding during the period and, unless antidilutive, the net
additional number of shares which would be issuable upon the exercise of
outstanding stock options, assuming that the Company used the proceeds received
to purchase additional shares at the estimated fair market value, as determined
by the Board of Directors, based in part on an independent appraisal.

Impact of Recent Accounting Pronouncements

In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of. This
pronouncement requires that long-lived assets and certain identifiable
intangible assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. An impairment loss is to be recognized when the sum of undiscounted
cash flows is less than the carrying amount of the asset. Measurement of the
loss for assets that the entity expects to hold and use are to be based on the
fair market value of the asset. SFAS No. 121 must be adopted for fiscal years
beginning in 1996. The Company adopted SFAS No. 121 effective January 1, 1996,
and determined that adoption of this pronouncement had no material impact on the
results of operations or financial condition as of January 1, 1996.

F-32
<PAGE> 162

CALPINE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. ACCOUNTS RECEIVABLE

The Company has both billed and unbilled receivables. The components of
accounts receivable as of March 31, 1996 and December 31, 1995 are as follows
(in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
1995
MARCH 31, ------------
1996
-----------
(UNAUDITED)
<S> <C> <C>
Projects:
Billed............................................ $15,806 $ 18,341
Unbilled.......................................... 549 525
Other............................................. 1,167 1,258
------- -------
$17,522 $ 20,124
======= =======
</TABLE>

Other accounts receivable consist primarily of disputed amounts related to
the Greenleaf facilities purchase price. In April 1996, the Company reclassified
such accounts receivable to property, plant and equipment as an adjustment to
the purchase price of the Greenleaf facilities (see Note 6).

Accounts receivable from related parties as of March 31, 1996 and December
31, 1995 are comprised of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
1995
MARCH 31, ------------
1996
-----------
(UNAUDITED)
<S> <C> <C>
O.L.S. Energy-Agnews, Inc. ......................... $ 379 $ 806
Geothermal Energy Partners, Ltd. ................... 1,512 462
Sumas Cogeneration Company, L.P. ................... 1,088 908
Electrowatt and subsidiaries........................ 1 1
------- -------
$ 2,980 $ 2,177
======= =======
</TABLE>

4. INVESTMENTS IN POWER PROJECTS

The Company has unconsolidated investments in power projects which are
accounted for under the equity method. Unaudited financial information for the
three months ended March 31, 1996 and 1995 related to these investments is as
follows (in thousands):

<TABLE>
<CAPTION>
1996 1995
----------------------------------- ----------------------------------
SUMAS O.L.S. GEOTHERMAL SUMAS O.L.S. GEOTHERMAL
COGENERATION ENERGY- ENERGY COGENERATION ENERGY- ENERGY
COMPANY, AGNEWS, PARTNERS, COMPANY, AGNEWS, PARTNERS,
L.P. INC. LTD. L.P. INC. LTD.
------------ ------- ---------- ------------ ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Revenue............................ $ 12,047 $1,699 $4,118 $ 8,653 $1,552 $4,969
Operating expenses................. 6,336 2,191 3,536 7,067 1,739 2,507
------- ------ ------ ------ ------ ------
Income (loss) from operations...... 5,711 (492 ) 582 1,586 (187) 2,462
Other expenses, net................ 2,599 275 1,246 2,637 650 1,438
------- ------ ------ ------ ------ ------
Net income (loss)............. $ 3,112 $ (767 ) $ (664) $ (1,051) $ (837) $1,024
======= ====== ====== ====== ====== ======
Company's share of net income
(loss)........................... $ 1,556 $ (153 ) $ 12 $ (526) $ (154) $ 64
======= ====== ====== ====== ====== ======
</TABLE>

5. CALPINE THERMAL POWER, INC.

In March 1996, Calpine Thermal Power, Inc. (Calpine Thermal) and Unocal
Corporation entered into an alternative pricing agreement with Pacific Gas and
Electric Company (PG&E) for any steam produced in

F-33
<PAGE> 163

CALPINE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

excess of 40% of average field capacity. An alternative pricing strategy would
be effective through December 31, 2000, with pricing strategies for 1996 and
1997 to be established during 1996. Under the agreement, PG&E would purchase a
portion of the steam that PG&E would have curtailed under Calpine Thermal's
existing steam sales agreement. The price of steam would be at competitive
market prices, subject to a specified minimum price.

6. CALPINE GREENLEAF CORPORATION

In April 1995, the Company purchased the capital stock of the companies
which owned 100% of the assets of two 49.5 megawatt natural gas-fired
cogeneration facilities (collectively, the Greenleaf facilities) located in Yuba
City in Northern California. The purchase price included a cash payment of $20.3
million and the assumption of project debt totalling $60.2 million. In April
1996, the Company finalized the purchase price in accordance with the Share
Purchase Agreement dated March 30, ,1995.

The acquisition was accounted for as a purchase and the purchase price has
been allocated to the acquired assets and liabilities based on the estimated
fair values of the acquired assets and liabilities as shown below. The adjusted
allocation of the purchase price is as follows (in thousands):

<TABLE>
<S> <C>
Current assets.................................................... $ 6,572
Property, plant and equipment..................................... 122,545
--------
Total assets................................................. 129,117
--------
Current liabilities............................................... (1,079)
Deferred income taxes, net........................................ (46,580)
--------
Total liabilities............................................ (47,659)
--------
Net purchase price................................................ $ 81,458
========
</TABLE>

7. KING CITY TRANSACTION

In April 1996, the Company entered into a long-term operating lease with
BAF Energy A California Limited Partnership (BAF), for a 120 megawatt natural
gas-fired combined cycle facility located in King City, California. The facility
generates electricity for sale to PG&E pursuant to a long-term power sales
agreement through 2019. Natural gas for the facility is supplied by Chevron USA
Inc. pursuant to a contract which expires June 30, 1997.

Under the terms of the operating lease, the Company makes semi-annual lease
payments to BAF, a portion of which is supported by a $100.7 million collateral
fund, owned by the Company. The collateral consists of a portfolio of investment
grade and U.S. Treasury Securities that will mature serially in amounts equal to
a portion of the lease payments.

The Company financed the collateral fund and other transaction costs with
$50.0 million of proceeds from the issuance of preferred stock to Electrowatt by
Calpine (see Note 10) and other short-term borrowings, which included $13.3
million of borrowings under the Credit Suisse Credit Facility discussed in Note
8 below and a $45.0 million loan from The Bank of Nova Scotia which bears
interest at 7.5% and matures upon the earlier of the issuance of the Senior
Notes Due 2006 (see Note 9) or August 23, 1996. The Company expects to repay the
short-term borrowings from a portion of the net proceeds of the Senior Notes Due
2006 to be issued in May 1996.

8. LINES OF CREDIT

At March 31, 1996, the Company had $32.2 million of borrowings under its
$50.0 million Credit Facility with Credit Suisse (whose parent company owns
44.9% of Electrowatt). The outstanding balance bears

F-34
<PAGE> 164

CALPINE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

interest at the London Interbank Offered Rate (LIBOR) plus a mutually agreed
margin, for a total interest rate of approximately 6.05% as of March 31, 1996.
Interest is paid on the last day of each interest period for such loan, but not
less often than quarterly, based on the principal amount outstanding during the
period. No stated principal amortization exists for this indebtedness.

On April 29, 1996, the Credit Facility was increased to $58.0 million. From
April 1, 1996 through May 14, 1996, the Company issued a letter of credit for
$25,000 and borrowed an additional $21.5 million for working capital purposes,
to fund loans in connection with the Cerro Prieto project, and to fund the King
City transaction as discussed in Note 7. A portion of the proceeds from the
Senior Notes Due 2006 to be issued in May 1996 will be used to repay the
outstanding balance of the Credit Facility.

9. SENIOR NOTES DUE 2006

On May 13, 1996, the Company agreed to issue $180.0 million aggregate
principal amount of 10 1/2% Senior Notes Due 2006. The net proceeds will be used
to refinance existing indebtedness and for general corporate purposes. The
Company has no sinking fund or mandatory redemption obligations with respect to
the Senior Notes Due 2006. Interest is payable semi-annually on May 15 and
November 15 of each year while the Senior Notes Due 2006 are outstanding,
commencing on November 15, 1996.

10. PREFERRED STOCK

The Company has 5,000,000 authorized shares of Series A Preferred Stock,
all of which were issued on March 21, 1996 and outstanding as of March 31, 1996.
All of the shares of Series A Preferred Stock are held by Electrowatt. The
shares of Series A Preferred Stock are not publicly traded. Currently, no
dividends are payable on the Series A Preferred Stock. The Company intends to
amend its Second Amended and Restated Articles of Incorporation to provide that
dividends may be paid on the Series A Preferred Stock, when and if declared by
the Board of Directors. The Series A Preferred Stock contains provisions
regarding liquidation and conversion rights.

11. CONTINGENCIES

The Company, together with over 100 other parties, was named as a defendant
in the second amended complaint in an action brought in August 1993 by the
bankruptcy trustee for Bonneville Pacific Corporation (Bonneville), captioned
Roger G. Segal, as the Chapter 11 Trustee for Bonneville Pacific Corporation v.
Portland General Corporation, et al., in the United States District Court for
the District of Utah. This complaint alleges that, in conjunction with top
executives of Bonneville and with the alleged assistance of the other 100
defendants, the Company engaged in a broad conspiracy and fraud. The complaint
has been amended a number of times. The Company has answered each version of the
complaint by denying all claims and is in the process of conducting discovery.
In August 1994, the Company successfully moved for an order severing the
trustee's claim against the Company from the claims against the other
defendants. Although the case involves over 25 separate financial transactions
entered into by Bonneville, the severed case concerns the Company in respect of
only one of these transactions. In 1988, the Company invested $2.0 million in a
partnership formed with Bonneville to develop four hydroelectric projects in the
State of Hawaii. The projects were not successfully developed by the
partnership, and, subsequent to Bonneville's Chapter 11 filing, the Company
filed a claim as a creditor against Bonneville's bankruptcy estate. The trustee
alleges that the equity investment was actually a "sham" loan designed to
inflate Bonneville's earnings. The trustee further alleges that Calpine is one
of many defendants in this case responsible for Bonneville's insolvency and the
amount of damage attributable to the Company based on the $2.0 million
partnership investment is alleged to be $577.2 million. The trustee is seeking
to hold each of the other defendants liable for a portion, all or, in certain
cases, more than this amount. The Company expects the matter will be set for
trial in 1996. The Company believes the claims against it are without merit and
will continue to defend the action vigorously. The Company further

F-35
<PAGE> 165

CALPINE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

believes that the resolution of this matter will not have a material adverse
effect on its financial position or results of operations.

ENCO, the wholly owned subsidiary of Sumas Cogeneration Company, L.P., in
which the Company is a limited partner, terminated protracted contract
negotiations with two Canadian natural gas suppliers in January 1995. One of the
suppliers notified ENCO it considered a draft contract to be effective although
it had not been executed by ENCO. The supplier indicated it may pursue legal
action if ENCO would not execute the contract. As of May 14, 1996, no legal
action has been served on ENCO. Management believes if legal action is
commenced, ENCO has significant defense and believes such action will not result
in any material adverse impact to the Company's financial condition or results
of operations.

F-36
<PAGE> 166

INDEPENDENT AUDITOR'S REPORT

To the Partners
Sumas Cogeneration Company, L.P. and Subsidiary

We have audited the accompanying consolidated balance sheet of Sumas
Cogeneration Company, L.P. and Subsidiary as of December 31, 1995 and 1994, and
the related consolidated statements of operations, changes in partners' deficit,
and cash flows for each of the three years ended December 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Sumas
Cogeneration Company, L.P. and Subsidiary as of December 31, 1995 and 1994 and
the results of their operations and cash flows for each of the three years ended
December 31, 1995, in conformity with generally accepted accounting principles.

MOSS ADAMS LLP

Everett, Washington
January 19, 1996

F-37
<PAGE> 167

SUMAS COGENERATION COMPANY, L.P.
AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents..................................... $ 199,169 $ 353,936
Current portion of restricted cash and cash equivalents....... 2,937,884 6,409,185
Accounts receivable........................................... 3,090,213 4,108,206
Prepaid expenses.............................................. 222,828 232,325
------------ ------------
Total current assets....................................... 6,450,094 11,103,652
Restricted cash and cash equivalents, net of current portion.... 8,017,758 7,454,923
Property, plant and equipment, at cost, net..................... 95,589,737 97,039,459
Other assets.................................................... 12,744,480 14,550,228
------------ ------------
$122,802,069 $130,148,262
============ ============
LIABILITIES AND PARTNERS' DEFICIT
Current liabilities
Accounts payable and accrued liabilities...................... $ 2,051,178 $ 3,651,799
Current portion of related party payables
Calpine Corporation........................................ 4,864 41,871
National Energy Systems Company............................ 1,861 1,430
Current portion of long-term debt............................. 2,000,000 400,000
------------ ------------
Total current liabilities.................................. 4,057,903 4,095,100
Related party payable -- Calpine Corporation, net of current
portion....................................................... 908,679 446,624
Long-term debt, net of current portion.......................... 117,000,003 119,000,002
Future removal and site restoration costs....................... 502,600 309,600
Deferred income taxes........................................... 907,800 773,800
Commitments and contingency (Notes 6 and 8)
Partners' (deficit) equity...................................... (574,916) 5,523,136
------------ ------------
$122,802,069 $130,148,262
============ ============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-38
<PAGE> 168

SUMAS COGENERATION COMPANY, L.P.
AND SUBSIDIARY

CONSOLIDATED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1995 1994 1993
------------ ------------ -----------
<S> <C> <C> <C>
Revenues
Power sales......................................... $ 30,603,018 $ 29,206,469 $19,525,098
Natural gas sales, net.............................. 893,690 2,832,668 2,104,407
Other............................................... 29,146 20,490 116,895
------------ ------------ -----------
Total revenues.............................. 31,525,854 32,059,627 21,746,400
------------ ------------ -----------
Costs and expenses
Operating and production costs...................... 18,493,245 19,032,754 11,779,505
Depletion, depreciation and amortization............ 6,965,496 6,715,156 4,986,300
General and administrative.......................... 1,400,129 1,412,326 1,563,509
------------ ------------ -----------
Total costs and expenses.................... 26,858,870 27,160,236 18,329,314
------------ ------------ -----------
Income from operations................................ 4,666,984 4,899,391 3,417,086
------------ ------------ -----------
Other income (expense)
Interest income..................................... 490,071 436,741 250,675
Interest expense.................................... (11,006,056) (10,172,959) (6,707,183)
Other expense....................................... (60,664) (359,000) --
------------ ------------ -----------
Total other expense......................... (10,576,649) (10,095,218) (6,456,508)
------------ ------------ -----------
Loss before provision for income taxes................ (5,909,665) (5,195,827) (3,039,422)
Provision for income taxes............................ (188,387) (581,190) (337,431)
------------ ------------ -----------
Net loss.............................................. $ (6,098,052) $ (5,777,017) $(3,376,853)
============ ============ ===========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-39
<PAGE> 169

SUMAS COGENERATION COMPANY, L.P.
AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

<TABLE>
<S> <C>
Partners' equity, December 31, 1992............................................. $14,688,436
Capital contributions........................................................... 1,500,000
Capital distributions........................................................... (1,500,000)
Net loss........................................................................ (3,376,853)
Cumulative foreign exchange translation adjustment.............................. (11,430)
-----------
Partners' equity, December 31, 1993............................................. 11,300,153
Net loss........................................................................ (5,777,017)
-----------
Partners' equity, December 31, 1994............................................. 5,523,136
Net loss........................................................................ (6,098,052)
-----------
Partners' deficit, December 31, 1995............................................ $ (574,916)
===========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-40
<PAGE> 170

SUMAS COGENERATION COMPANY, L.P.
AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss.......................................... $(6,098,052) $(5,777,017) $(3,376,853)
Adjustments to reconcile net loss to net cash from
operating activities
Depletion, depreciation and amortization....... 6,965,496 6,715,156 4,986,300
Deferred income taxes.......................... 134,000 532,400 241,400
Changes in operating assets and liabilities
Accounts receivable.......................... 1,017,993 (1,254,639) (2,064,616)
Prepaid expenses............................. 9,497 (30,342) 203,904
Accounts payable and accrued liabilities..... (1,407,621) 1,081,431 1,168,892
Related party payables....................... 425,479 132,296 --
----------- ----------- -----------
Net cash from operating activities........ 1,046,792 1,399,285 1,159,027
----------- ----------- -----------
Cash flows from investing activities
Decrease (increase) in restricted cash and cash
equivalents.................................... 2,908,466 2,922,819 (13,286,927)
Acquisition of property, plant and equipment...... (3,710,025) (3,690,399) (16,558,101)
Other assets...................................... -- (167,483) (5,700,537)
Accounts payable and accrued liabilities.......... -- -- (3,847,743)
----------- ----------- -----------
Net cash from investing activities........ (801,559) (935,063) (39,393,308)
----------- ----------- -----------
Cash flows from financing activities
Proceeds from long-term debt...................... -- -- 38,710,000
Repayment of long-term debt....................... (400,000) (400,025) (199,973)
Capital contributions............................. -- -- 1,500,000
Capital distributions............................. -- -- (1,500,000)
Payments to related parties....................... -- -- (864,890)
----------- ----------- -----------
Net cash from financing activities........ (400,000) (400,025) 37,645,137
----------- ----------- -----------
Effect of exchange rate changes on cash............. -- -- (11,430)
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents....................................... (154,767) 64,197 (600,574)
Cash and cash equivalents, beginning of year........ 353,936 289,739 890,313
----------- ----------- -----------
Cash and cash equivalents, end of year.............. $ 199,169 $ 353,936 $ 289,739
=========== =========== ===========
Supplementary disclosure of cash flow information
Cash paid for interest during the year............ $11,006,056 $10,172,959 $ 8,868,183
=========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-41
<PAGE> 171

SUMAS COGENERATION COMPANY, L.P.
AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993

NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) GENERAL -- Sumas Cogeneration Company, L.P. (the Partnership) is a
Delaware limited partnership formed on August 28, 1991 between Sumas Energy,
Inc. (SEI), the general partner which currently holds a 50% interest in the
profits and losses of the Partnership and Whatcom Cogeneration Partners, L.P.
(Whatcom), the sole limited partner which holds the remaining 50% Partnership
interest. Whatcom is owned through affiliated companies by Calpine Corporation
(Calpine). The Partnership has a wholly owned Canadian subsidiary, ENCO Gas,
Ltd. (ENCO), which is incorporated in New Brunswick, Canada. The consolidated
financial statements include the accounts of the Partnership and ENCO
(collectively, the Company). All intercompany profits, transactions and balances
have been eliminated in consolidation.

Prior to the commencement of commercial operation as discussed below, the
Partnership was considered to be a development stage company in the process of
developing, constructing and owning an electrical generation facility (the
Generation Facility) in Sumas, Washington. The Generation Facility is a natural
gas-fired combined cycle electrical generation plant which has a nameplate
capacity of approximately 125 megawatts. Commercial operation of the Generation
Facility commenced on April 16, 1993. In addition, the Generation Facility
includes a lumber dry kiln facility and a 3.5 mile private natural gas pipeline.
The lumber dry kiln commenced commercial operation in May 1993.

ENCO has acquired and is operating and developing a portfolio of proven
natural gas reserves in British Columbia and Alberta, Canada which provide a
dedicated fuel supply for the Generation Facility (collectively, the Project).
ENCO produces and supplies natural gas production to the Generation Facility,
with incidental off-sales to third parties. The Generation Facility also
receives a portion of its fuel under contracts with third parties.

The Partnership produces and sells its entire electricity capacity to Puget
Sound Power & Light Company (Puget) under a 20-year electricity sales contract.
Under the electricity sales contract, the Partnership is required to be
certified as a qualifying cogeneration facility as established by the Public
Utility Regulatory Policy Act of 1978, as amended, and as administered by the
Federal Energy Regulatory Commission.

The Generation Facility produced and sold megawatt hours of electricity to
Puget as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, MEGAWATTS REVENUE
---------------------------------------------------- --------- -----------
<S> <C> <C>
1995................................................ 1,026,000 $30,603,000
1994................................................ 1,000,400 $29,206,000
1993................................................ 696,400 $19,525,000
</TABLE>

The Partnership leases a kiln facility and sells steam under a 20-year
agreement for the purchase and sale of steam and lease of the kiln (Note 6) to
Socco, Inc. (Socco), a custom lumber drying operation owned by an affiliate of
the Partnership. Steam use requirements under the agreement with Socco were
established to maintain the qualifying cogeneration facility status of the
Generation Facility.

(b) THE PARTNERSHIP -- SEI assigned all its rights, title, and interest in
the Project, including the Puget contract, to the Partnership in exchange for
its Partnership interest. SEI and Whatcom are both currently entitled to a 50%
interest in the profits and losses of the Partnership, after the payment of
certain preferential distributions to Whatcom of approximately $6,239,000 and
$5,619,000 at December 31, 1995 and 1994, respectively, and to SEI of
approximately $441,000 and $363,000 at December 31, 1995 and 1994, respectively.
A portion of these preferential distributions compound at 20% per annum. After
Whatcom has received cumulative distributions representing a fixed rate of
return of 24.5% on its equity investment,

F-42
<PAGE> 172

SUMAS COGENERATION COMPANY, L.P.
AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

exclusive of the preferential distributions referred to above, SEI's share of
operating distributions will increase to 88.67% and Whatcom's share of operating
distributions will decrease to 11.33%.

(c) DISTRIBUTIONS -- Distributions of operating cash flows are permitted
quarterly after required deposits are made and minimum cash balances are met,
and subject to certain other restrictions. During 1995 and 1994, there were no
distributions of operating cash flow. In 1993 Whatcom received a distribution of
$1,500,000, reducing its equity investment in the Partnership. Whatcom loaned
the sole shareholder of SEI $1,500,000, and the sole shareholder of SEI loaned
$1,500,000 to SEI. SEI then contributed $1,500,000 in additional equity to the
Partnership.

(d) REVENUE RECOGNITION -- Revenue from the sale of electricity is
recognized based on kilowatt hours generated and delivered to Puget at
contractual rates. Revenue from the sale of natural gas is recognized based on
volumes delivered to customers at contractual delivery points and rates. The
costs associated with the generation of electricity and the delivery of gas,
including operating and maintenance costs, gas transportation and royalties, are
recognized in the same period in which the related revenue is earned and
recorded.

(e) GAS ACQUISITION AND DEVELOPMENT COSTS -- ENCO follows the full cost
method of accounting for gas acquisition and development expenditures, wherein
all costs related to the development of gas reserves in Canada are initially
capitalized. Costs capitalized include land acquisition costs, geological and
geophysical expenditures, rentals on undeveloped properties, cost of drilling
productive and nonproductive wells, and well equipment. Gains or losses are not
recognized upon disposition or abandonment of natural gas properties unless a
disposition or abandonment would significantly alter the relationship between
capitalized costs and proven reserves.

All capitalized costs of gas properties, including the estimated future
costs to develop proven reserves, are depleted using the unit-of-production
method based on estimated proven gas reserves as determined by independent
engineers. ENCO has not assigned any value to its investment in unproven gas
properties and, accordingly, no costs have been excluded from capitalized costs
subject to depletion.

Costs subject to depletion under the full cost method include estimated
future costs of dismantlement and abandonments of $3,748,000 in 1995, $3,630,000
in 1994 and $3,026,400 in 1993. This includes the cost of production equipment
removal and environmental cleanup based upon current regulations and economic
circumstances. The provisions for future removal and site restoration costs of
$193,000 in 1995, $169,000 in 1994 and $110,000 in 1993, are included in
depletion expense.

Capitalized costs are subject to a ceiling test which limits such costs to
the aggregate of the net present value of the estimated future cash flows from
the related proven gas reserves. The ceiling test calculation is made by
estimating the future net cash flows, based on current economic operating
conditions, plus the lower of cost or fair market value of unproven reserves,
and discounting those cash flows at an annual rate of 10%.

(f) JOINT VENTURE ACCOUNTING -- Substantially all of ENCO's natural gas
production activities are conducted jointly with others and, accordingly, these
consolidated financial statements reflect only ENCO's proportionate interest in
such activities.

(g) FOREIGN EXCHANGE GAINS AND LOSSES -- During 1995 and 1994, foreign
exchange gains and losses as a result of translating Canadian dollar
transactions and Canadian dollar denominated cash, accounts receivable and
accounts payable transactions are recognized in the statement of operations.
During 1993, ENCO's functional currency was Canadian dollars. As a result,
translation adjustments were reported separately and accumulated as separate
components of partners' equity.

(h) CASH AND CASH EQUIVALENTS -- For purposes of the statement of cash
flows, cash and cash equivalents consist of cash and short-term investments in
highly liquid instruments such as certificates of deposit, money

F-43
<PAGE> 173

SUMAS COGENERATION COMPANY, L.P.
AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

market accounts and U.S. treasury bills with an original maturity of three
months or less, excluding restricted cash and cash equivalents.

(i) CONCENTRATION OF CREDIT RISK -- Financial instruments, which
potentially subject the Company to concentrations of credit risk, consist
primarily of cash and short-term investments in highly liquid instruments such
as certificates of deposit, money market accounts and U.S. treasury bills with
maturities of three months or less, and accounts receivable. The Company's cash
and cash equivalents are primarily held with two financial institutions.
Accounts receivable are primarily due from Puget.

(j) DEPRECIATION -- The Company provides for depreciation of property,
plant and equipment using the straight-line method over estimated useful lives
which range from 7 to 40 years for plant and equipment and 3 to 7 years for
furniture and fixtures.

(k) AMORTIZATION OF OTHER ASSETS -- The Company provides for amortization
of other assets using the straight-line method as follows:

<TABLE>
<S> <C>
Organization, start-up and development costs..................... 5-30 years
Financing costs.................................................. 15 years
Gas contract costs............................................... 20 years
</TABLE>

(l) INCOME TAXES -- Profits or losses of the Partnership are passed
directly to the partners for income tax purposes.

ENCO is subject to Canadian income taxes and accounts for income taxes on
the liability method. The liability method recognizes the amount of tax payable
at the date of the consolidated financial statements as a result of all events
that have been recognized in the consolidated financial statements, as measured
by currently enacted tax laws and rates. Deferred income taxes are provided for
temporary differences in recognition of revenues and expenses for financial and
income tax reporting purposes.

(m) USE OF ESTIMATES -- The preparation of the consolidated financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts reported in
the consolidated financial statements and accompanying notes. Actual results
could differ from those estimates.

NOTE 2 -- PROPERTY, PLANT AND EQUIPMENT

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1995 1994
------------ ------------
<S> <C> <C>
Land and land improvements.............................. $ 381,071 $ 381,071
Plant and equipment..................................... 84,061,359 82,759,005
Acquisition of gas properties, including development
thereon............................................... 25,030,165 22,815,964
Furniture and fixtures.................................. 195,914 188,444
------------ ------------
109,668,509 106,144,484
Less accumulated depreciation and depletion............. 14,078,772 9,105,025
------------ ------------
$ 95,589,737 $ 97,039,459
============ ============
</TABLE>

Depreciation expense was $3,316,748 in 1995, $3,069,446 in 1994 and
$2,133,711 in 1993. Depletion expense was $1,843,000 in 1995, $1,671,000 in 1994
and $1,332,000 in 1993.

F-44
<PAGE> 174

SUMAS COGENERATION COMPANY, L.P.
AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 3 -- OTHER ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1994
----------- -----------
<S> <C> <C>
Organization, start-up and development costs.............. $ 6,165,574 $ 7,487,943
Financing costs........................................... 4,254,719 4,598,746
Gas contract costs........................................ 2,324,187 2,463,539
----------- -----------
$12,744,480 $14,550,228
=========== ===========
</TABLE>

NOTE 4 -- LONG-TERM DEBT

The Partnership and ENCO have loan agreements with The Prudential Insurance
Company of America (Prudential) and Credit Suisse (collectively, the Lenders).
Credit Suisse is an affiliate of Whatcom. At December 31, 1995 and 1994, amounts
outstanding under the term loan agreements, by entity, were as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1995 1994
------------ ------------
<S> <C> <C>
Sumas Cogeneration Company, L.P......................... $ 94,367,003 $ 94,684,202
ENCO Gas, Ltd........................................... 24,633,000 24,715,800
------------ ------------
119,000,003 119,400,002
Less current portion.................................... 2,000,000 400,000
------------ ------------
$117,000,003 $119,000,002
============ ============
</TABLE>

Scheduled annual principal payments under the loan agreements as of
December 31, 1995 are as follows:

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
--------------------------------------------------------------- ------------
<S> <C>
1996........................................................... $ 2,000,000
1997........................................................... 3,600,000
1998........................................................... 4,200,000
1999........................................................... 5,400,000
2000........................................................... 7,200,000
Thereafter..................................................... 96,600,003
------------
$119,000,003
============
</TABLE>

The Partnership's loan is comprised of a fixed rate loan in the original
amount of $55,510,000 and a variable rate loan in the original amount of
$39,650,000. Interest is payable quarterly on the fixed rate loan at a rate of
10.35%. Interest on the variable rate loan is payable quarterly at either the
London Interbank Offered Rate (LIBOR), certificate of deposit rate or Credit
Suisse's base rate, plus an applicable margin which ranges from 2.25% prior to
Loan Conversion to .875% after Loan Conversion as stated in the loan agreement.
During the year ended December 31, 1995, interest rates on the variable rate
loan ranged from 7.47% to 7.76%. The loans mature in May 2008.

ENCO's loan is comprised of a fixed rate loan in the original amount of
$14,490,000 and a variable rate loan in the original amount of $10,350,000.
Interest is payable quarterly on the fixed rate loan at a rate of 9.99%.
Interest on the variable rate loan is payable quarterly at either the LIBOR,
certificate of deposit rate or Credit Suisse's base rate, plus an applicable
margin as stated in the loan agreement. During the year ended

F-45
<PAGE> 175

SUMAS COGENERATION COMPANY, L.P.
AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

December 31, 1995, interest rates on the variable rate loan ranged from 7.47% to
7.76%. The loans mature in May 2008.

The Partnership pays Prudential an agency fee of $50,000 per year, adjusted
annually by an inflation index, until the loan matures. The Partnership pays
Credit Suisse an agency fee of $40,000 per year, adjusted annually by an
inflation index, until the loan matures. The loans are collateralized by
substantially all the Company's assets and interests in the Project.
Additionally, the Company's rights under all contractual agreements are assigned
as collateral. The Partnership and ENCO loans are cross-collateralized and
contain cross-default provisions.

Under the terms of the loan agreements and the deposit and disbursement
agreements with the Lenders, the Partnership is required to establish and fund
certain accounts held by Credit Suisse and Royal Trust as security agents. The
accounts require specified minimum deposits and funding levels to meet current
and future operating, maintenance and capital costs, and to provide certain
other reserves for payment of principal, interest and other contingencies. These
accounts are presented as restricted cash and cash equivalents and include cash,
certificates of deposit, money market accounts and U.S. treasury bills, all with
maturities of 3 months or less. The current portion of restricted cash and cash
equivalents is based on the amount of current liabilities for obligations which
may be funded from the restricted accounts. The balance of restricted cash and
cash equivalents has been classified as a noncurrent asset.

During 1993, the Company incurred and paid $8,868,183 of interest,
including $6,707,183, which was charged to operations and $2,161,000, which was
capitalized.

NOTE 5 -- INCOME TAXES

The provision for income taxes represents Canadian taxes which consist of
the following:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Current
Federal large corporation tax.................... $ 34,625 $ 31,314 $ 45,262
British Columbia capital taxes................... 19,762 17,476 50,769
-------- -------- --------
54,387 48,790 96,031
Deferred........................................... 135,400 178,400 241,400
-------- -------- --------
189,787 227,190 337,431
Utilization of loss carryforwards for Canadian
income
tax purposes..................................... 47,700 259,000 --
Reduction of (increase in) Canadian loss
carryforwards
due to foreign exchange and other adjustments.... (49,100) 95,000 --
-------- -------- --------
$188,387 $581,190 $337,431
======== ======== ========
</TABLE>

F-46
<PAGE> 176

SUMAS COGENERATION COMPANY, L.P.
AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The principal sources of temporary differences resulting in deferred tax
assets and liabilities are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1994
---------- ----------
<S> <C> <C>
Deferred tax asset
Canadian net operating loss carryforwards................. $ (840,900) $ (829,400)
Deferred tax liabilities
Acquisition and development costs of gas deducted for tax
purposes in excess of amounts deducted for financial
reporting purposes..................................... 1,748,700 1,603,200
---------- ----------
Net deferred tax liability........................ $ 907,800 $ 773,800
========== ==========
</TABLE>

The provision for income taxes differs from the Canadian statutory rate
principally due to the following:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Canadian statutory rate............................ 44.62% 44.34% 44.3%
Income taxes based on statutory rate............... $(33,852) $ 82,909 $165,100
Capital taxes, net of deductible portion........... 47,028 36,678 75,587
Non-deductible provincial royalties, net of
resource allowance............................... 95,671 39,836 50,267
Depletion on gas properties with no tax basis...... 44,641 38,420 41,778
Other foreign exchange adjustments................. 36,299 29,347 4,699
-------- -------- --------
$189,787 $227,190 $337,431
======== ======== ========
</TABLE>

As of December 31, 1995, ENCO has non-capital loss carryforwards of
approximately $1,885,000 which may be applied against taxable income of future
periods which expire as follows:

NOTE 6 -- RELATED PARTY TRANSACTIONS AND COMMITMENTS

(a) ADMINISTRATIVE SERVICES -- As managing partner of the Partnership, SEI
receives a fee of $250,000 per year from June 1993 through December 1995 and
$300,000 per year for periods after December 1995. The fee is subject to annual
adjustment based upon an inflation index. Approximately $258,000 in 1995,
$253,000 in 1994 and $151,000 in 1993 was paid to SEI under this agreement.

(b) OPERATING AND MAINTENANCE SERVICES -- The Partnership has an operating
and maintenance agreement with a related party to operate, repair and maintain
the Project. For these services, the Partnership pays a fixed fee of $1,140,000
per year adjustable based on the Consumer Price Index, an annual base fee of
$150,000 per year also adjustable based on the Consumer Price Index, and certain
other reimbursable expenses as defined in the agreement. In addition, the
agreement provides for an annual performance bonus of up to $400,000, adjustable
based on the Consumer Price Index, based on the achievement of certain annual
performance levels. Payment of the performance bonus is subordinated to the
payment of operating expenses, debt service and required deposits, and minimum
balances under the loan agreements, and deposit and disbursement agreements.
Accordingly, the performance bonuses earned in 1995 and 1994 are included as a
non-current liability in the consolidated balance sheet. This agreement expires
on the date Whatcom receives its 24.5% cumulative return or the tenth
anniversary of the Project completion date, subject to renewal terms.

F-47
<PAGE> 177

SUMAS COGENERATION COMPANY, L.P.
AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Approximately $2,031,000 in 1995, $1,946,000 in 1994 and $1,260,000 in 1993 was
earned under this agreement.

(c) THERMAL ENERGY AND KILN LEASE -- The Partnership has a 20-year thermal
energy and kiln lease agreement with Socco. Under this agreement, Socco leases
the premises and the kiln and purchases certain amounts of thermal energy
delivered to dry lumber. Income recorded from Socco was approximately $19,000 in
1995, $61,000 in 1994 and $6,000 in 1993.

(d) CONSULTING SERVICES -- ENCO has an agreement with National Energy
Systems Company (NESCO), an affiliate of SEI, to provide consulting services for
$8,000 per month, adjustable based upon an inflation index. The agreement
automatically renews for one-year periods unless written notice of termination
is served by either party. Approximately $100,000 in 1995, $101,000 in 1994 and
$96,000 in 1993 was paid under this agreement

(e) FUEL SUPPLY AND PURCHASE AGREEMENTS -- The Partnership has a fixed
price natural gas sale and purchase agreement with ENCO. The agreement requires
ENCO to deliver up to a maximum daily contract quantity of 12,000 MMBtu's of
natural gas per day which may be increased to 24,000 MMBtu's in accordance with
the agreement. The Partnership paid ENCO $2.26 per delivered MMBtu through
October 1995 and pays $2.43 per delivered MMBtu through 1996. Prices under the
agreement then escalate at an annual rate of 7.5% until October 31, 2000, and at
4% per annum thereafter. Partnership payments to ENCO under the agreement are
eliminated in consolidation. The agreement expires on the twentieth anniversary
of the date of commercial operation.

The Partnership has a gas supply agreement with Westcoast Gas Services,
Inc. (WGSI) to provide the Partnership with quantities of firm gas. Commencing
April 1, 1993, WGSI must provide the Partnership with quantities of gas ranging
from 10,000 MMBtu's per day up to 12,900 MMBtu's per day at a firm price, as
provided under the agreement. The agreement is expected to terminate on October
31, 1996.

The Partnership and ENCO have a gas management agreement with WGSI. WGSI is
paid a gas management fee for each MMBtu of gas delivered to the Generation
Facility. The gas management fee is adjusted annually based on the British
Columbia Consumer Price Index. The gas management agreement expires October 31,
2008 unless terminated earlier as provided for in the agreement

ENCO is committed to the utilization of pipeline capacity on the Westcoast
Energy Inc. System. These firm capacity commitments are predominantly under
one-year renewable contracts. Firm capacity has been accepted at an annual cost
of approximately $2,569,000 in 1995, $2,776,000 in 1994 and $1,347,000 in 1993.

As collateral for the obligations of the Company under the gas supply and
gas management agreements with WGSI, the Partnership secured an irrevocable
standby letter of credit with Credit Suisse in favor of WGSI. As of December 31,
1995 and 1994, the letter of credit had a face amount of $2,500,000 and the
Partnership had a cash deposit of $2,500,000 held in a restricted money market
account as collateral for the letter of credit. As of December 31, 1995 and
1994, $2,500,000 held in a restricted money market account is included in the
current portion of restricted cash and cash equivalents. In January 1996, the
letter of credit was reduced in accordance with its terms to a face amount of
$500,000.

(f) UTILITY SERVICES -- The Partnership entered into an agreement for
utility services with the City of Sumas, Washington. The City of Sumas has
agreed to provide a guaranteed annual supply of water at its wholesale rate
charged to external association customers. Should the Partnership fail to
purchase the daily average minimum of 550 gallons per minute from the City of
Sumas during the first 10 years of commercial operation, except for
uncontrollable forces or reasonable and necessary shutdowns, the Partnership
shall make up the lost revenue to the City of Sumas in accordance with the
agreement.

F-48
<PAGE> 178

SUMAS COGENERATION COMPANY, L.P.
AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Partnership entered into an agreement for waste water disposal with the
City of Bellingham, Washington. The City of Bellingham has agreed to accept up
to 70,000 gallons of waste water daily at a rate of one cent per gallon. The
agreement expires on December 31, 1998.

(g) LEASE COMMITMENTS -- In December 1990, the Partnership entered into a
23.5-year land lease which may be renewed for five consecutive five-year
periods. Rental expense was approximately $48,400 in 1995 and 1994, and $45,300
in 1993.

In April 1992, ENCO signed an operating lease for office space which
expires in March 1997. Monthly rental expense is approximately $1,700. Rental
expense was approximately $17,700 in 1995, $17,000 in 1994 and $16,000 in 1993.

Future minimum land and office lease commitments as of December 31, 1995
are as follows:

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
----------------------------------------------------------------- ----------
<S> <C>
1996............................................................. $ 66,800
1997............................................................. 51,000
1998............................................................. 49,300
1999............................................................. 49,300
2000............................................................. 52,500
Thereafter....................................................... 868,200
----------
$1,137,100
==========
</TABLE>

(h) PROJECT MANAGEMENT SERVICES -- NESCO entered into a project management
agreement with the Partnership for which it received $45,000 per month through
June 1993. Approximately $264,000 was paid to NESCO in 1993, under this
agreement.

(i) CONSTRUCTION MANAGEMENT SERVICES -- Calpine entered into a construction
management agreement with the Partnership for which it received $40,000 per
month through June 1993. Approximately $235,000 was paid to Calpine in 1993,
under this agreement.

(j) PARTNER LOAN -- In March 1994, the sole shareholder of SEI borrowed
$10,000,000 from Calpine. The loan bears interest at 16.25%, compounded
quarterly, and is collateralized by a subordinated assignment in SEI's interest
in the Partnership and a subordinated pledge of SEI's stock. The loan requires
payments of interest and principal to be made from 50% of SEI's cash
distributions from the Partnership, less amounts due to Whatcom under a previous
note made in connection with Loan Conversion (Note 1). On March 15, 2004, all
unpaid principal and interest on the loan is due.

NOTE 7 -- FAIR VALUES OF FINANCIAL INSTRUMENTS

The carrying amount of all cash and cash equivalents reported in the
consolidated balance sheet is estimated by the Company to approximate their fair
value.

The Company is not able to estimate the fair value of its long-term debt
with a carrying amount of $119,000,003 at December 31, 1995. There is no ability
to assess current market interest rates of similar borrowing arrangements for
similar projects because the terms of each such financing arrangement is the
result of substantial negotiations among several parties.

F-49
<PAGE> 179

SUMAS COGENERATION COMPANY, L.P.
AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 8 -- CONTINGENCY

ENCO terminated protracted contract negotiations with two Canadian natural
gas suppliers in January 1995. One of the suppliers notified ENCO it considered
a draft contract to be effective although it had not been executed by ENCO. The
supplier indicated it may pursue legal action if ENCO would not execute the
contract. As of January 19, 1996, no legal action has been served on ENCO.
Management believes if legal action is commenced, it has significant defenses
and believes such action will not result in any material adverse impact to the
Company's financial condition or results of operations.

F-50
<PAGE> 180

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Partners of Calpine Geysers Company, L.P.:

We have audited the accompanying statements of operations and cash flows
for the period from January 1, 1993 to April 18, 1993 of Calpine Geysers
Company, L.P., a Delaware limited partnership. These financial statements are
the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Calpine
Geysers Company, L.P. for the period from January 1, 1993 through April 18, 1993
in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

San Jose, California
March 18, 1994

F-51
<PAGE> 181

CALPINE GEYSERS COMPANY, L.P.

STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JANUARY 1, 1993 TO APRIL 18, 1993

<TABLE>
<S> <C>
Revenue from power contracts.................................................... $20,759,116
-----------
Costs and expenses:
Production royalties.......................................................... 3,150,076
Operating expenses............................................................ 4,893,878
Depreciation and amortization................................................. 5,153,239
General and administrative.................................................... 787,005
-----------
Total costs and expenses.............................................. 13,984,198
-----------
Income from operations................................................ 6,774,918
Other (income) expense
Interest expense.............................................................. 4,794,952
Other income.................................................................. (193,179)
-----------
Net income............................................................ $ 2,173,145
===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-52
<PAGE> 182

CALPINE GEYSERS COMPANY, L.P.

STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1993 TO APRIL 18, 1993

<TABLE>
<S> <C>
Cash flows from operating activities:
Net income................................................................... $ 2,173,145
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization............................................. 5,153,239
Amortization of deferred costs............................................ 146,277
Changes in operating assets and liabilities:
Accounts receivable..................................................... 2,157,353
Supplies inventory...................................................... 81,061
Prepaid expenses........................................................ 837,841
Accounts payable and accrued liabilities................................ 2,634,254
Deferred revenue........................................................ 395,100
Payment on note payable................................................. (543,778)
------------
Net cash provided by operating activities............................ 13,034,492
------------
Cash flows from investing activities:
Acquisition of property, plant and equipment................................. (3,401,378)
Increase in restricted cash requirements..................................... (12,862)
------------
Net cash used for investing activities............................... (3,414,240)
------------
Cash flows from financing activities:
Repayment of debt............................................................ (2,200,000)
Partner distributions........................................................ (7,416,018)
------------
Net cash used for financing activities............................... (9,616,018)
------------
Net increase in cash and cash equivalents...................................... 4,234
Cash and cash equivalents at beginning of period............................... 2,700,135
------------
Cash and cash equivalents at end of period..................................... $ 2,704,369
============
Supplementary information:
Cash paid during the period for interest..................................... $ 3,914,710
============
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-53
<PAGE> 183

CALPINE GEYSERS COMPANY, L.P.

NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 1, 1993 TO APRIL 18, 1993

1. BUSINESS AND FORMATION OF THE PARTNERSHIP

Business

Calpine Geysers Company, L.P. ("CGC"), a Delaware limited partnership, was
formed on April 5, 1990. CGC is the owner of two operating geothermal power
plants and their respective steam fields, and three geothermal steam fields
located in The Geysers area of northern California. Electricity and steam
generated by CGC is sold to two utilities under long-term power sales contracts
(see Note 9).

Formation of the Partnership

CGC was formed by Sonoma Geothermal Partners, L.P. ("SGP"), wholly owned by
Calpine Corporation ("Calpine"), and Freeport-McMoRan Resource Partners, Limited
Partnership ("FMRP") for the purpose of acquiring from FMRP the assets
constituting the geothermal business described above. On July 2, 1990, FMRP
contributed an undivided 15.93 percent interest in the existing assets and
geothermal business and $1,178,567 in cash for financing costs. SGP contributed
$22,165,718 in cash, including financing and closing costs of $2,008,000.

Concurrent with the formation of CGC, an agreement was entered into between
CGC and FMRP to purchase the remaining undivided 84.07 percent interest in the
existing assets and geothermal business for $227.0 million in cash plus the
assumption of the liabilities, not including existing project debt. The amount
was funded by SGP's contribution and a new nonrecourse credit arrangement with a
consortium of banks (see Note 5).

Under the CGC partnership agreement, profits are allocated first to SGP to
the extent necessary to achieve a target return, as defined. Thereafter, profits
are allocated 22.5 percent to SGP and 77.5 percent to FMRP.

Upon liquidation, equity is allocated first to SGP to the extent necessary
to achieve a target return as defined; second, equity is allocated to achieve
the target capital account ratios (22.5 percent to SGP and 77.5 percent to
FMRP); and third, equity is allocated 22.5 percent to SGP and 77.5 percent to
FMRP.

Cash distributions are allocated 99 percent to SGP and 1 percent to FMRP
until the target return is reached. Distributions made during the period from
January 1, 1993 to April 18, 1993 were $7,352,017 to SGP and $64,001 to FMRP.

Acquisition of FMRP Interest in CGC

On April 19, 1993, Calpine purchased all of FMRP's interest in CGC for
$59.8 million, terminating the partnership with FMRP. The purchase price
includes a $23.0 million cash payment by Calpine and a $36.8 million note
payable to FMRP.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash and Cash Equivalents

CGC's cash, cash equivalents and restricted cash are primarily held by one
major international financial institution. CGC considers all highly liquid
instruments purchased with an original maturity of three months or less to be
cash equivalents. The carrying amount of these instruments approximates fair
value because of their short maturity.

F-54
<PAGE> 184

CALPINE GEYSERS COMPANY, L.P.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Restricted Cash

CGC is required to maintain cash balances that are restricted by provisions
of its debt agreements and by regulatory agencies. CGC's debt agreements specify
restrictions based on debt service payments and drilling costs for the following
year. Regulatory agencies require cash to be restricted to ensure that funds
will be available to restore property to its original condition. Restricted cash
is invested in accounts earning market rates. Therefore, their carrying value
approximates fair value.

Supplies Inventory

Supplies are valued at the lower of cost or market. Cost for large
replacement parts is determined using the specific identification method. For
the remaining supplies, cost is determined using the weighted average cost
method.

Property, Plant and Equipment

CGC uses the full cost method of accounting for costs incurred in
connection with the exploration and development of geothermal properties. All
such costs, including geological and geophysical expenses, costs of drilling
productive, nonproductive and reinjection wells and overhead directly related to
development activities, together with the costs of production equipment, the
related facilities and the operating power plants, are capitalized.

Proceeds from the sale of assets are applied against capitalized costs,
with no gain or loss recognized.

Deferred Costs

Deferred costs consist of financing costs, a commitment fee and Partnership
closing costs. These costs are amortized over the following periods:

<TABLE>
<S> <C>
Financing costs................................................. 15 years
Partnership closing costs....................................... 5 to 7 years
</TABLE>

Revenue Recognition

Revenues from sales of electricity are recognized as service is delivered.
Revenues from sales of steam are calculated considering a future period when
steam will be delivered without receiving corresponding revenue. This free steam
is being recorded at an average rate over future steam production as deferred
revenue.

A recent accounting principle requires companies to recognize revenue on
power sales agreements entered into after May 1992 using the lower of the actual
cash received or the average rate measured on a cumulative basis. CGC's power
sales agreements were entered into prior to May 1992. Had CGC applied this
principle, the revenues CGC recorded for the period from January 1, 1993 to
April 18, 1993 would have been approximately $488,000 less.

Income Taxes

Income taxes are the responsibility of the individual partners; therefore,
there is no provision for Federal and state income taxes in the financial
statements.

F-55
<PAGE> 185

CALPINE GEYSERS COMPANY, L.P.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

3. WORKING CAPITAL LOAN

CGC has a working capital agreement with a bank providing for advances not
to exceed $5.0 million less any outstanding letters of credit. The aggregate
unpaid principal of the working capital loan is payable in full at least once a
year commencing in 1991, with the final payment of principal, interest and fees
due June 30, 1995; interest accrues at the London Interbank Offered Rate (LIBOR)
plus .625 percent over the term of the loan.

4. NOTE PAYABLE

During 1992, CGC entered into a note payable with a financing company for
$543,778. The note bears interest at 3.79 percent annually and was repaid in two
installments in January and April 1993.

5. LONG-TERM DEBT

CGC has a $200.0 million ($176.8 million outstanding at April 18, 1993)
loan agreement with a bank, the components of which are as follows:

Senior term loans: $156.8 million outstanding at April 18, 1993 with
principal and interest payable in quarterly installments at variable
amounts beginning September 30, 1990 and the final payment of principal,
interest and fees due June 30, 2002; interest on $136.8 million is fixed at
9.93 percent with the remainder accruing at LIBOR plus .75 percent to 1.25
percent over the term of the loan; collateralized by all of CGC's assets
and the partners' interest.

Junior term loans: $20.0 million outstanding at April 18, 1993 with
principal and interest payable in quarterly installments at variable
amounts beginning September 30, 2002 and the final payment of principal,
interest and fees due June 30, 2005; interest accrues at LIBOR plus 1.5
percent to 2.75 percent over the term of the loan; the loan is
collateralized by all of CGC's assets and the partners' interest.

The annual principal maturities of the long-term debt outstanding at April
18, 1993 are as follows:

<TABLE>
<S> <C>
1993........................................................... $ 8,800,000
1994........................................................... 16,000,000
1995........................................................... 18,000,000
1996........................................................... 21,000,000
1997........................................................... 22,000,000
Thereafter..................................................... 91,000,000
------------
$176,800,000
============
</TABLE>

The senior and junior term loan agreements contain a number of covenants.
Two of these covenants require that CGC maintain restricted cash balances as
defined in the agreements, and that CGC maintain certain insurance coverages.
During the period from January 1, 1993 to April 18, 1993, CGC did not meet the
insurance covenant and has obtained a waiver for this violation.

The carrying value of the $136.8 million portion of the senior term notes
has an effective rate of 9.93 percent under CGC's interest rate swap agreements
(see Note 6). Based on the borrowing rates currently available to CGC for bank
loans with similar terms and maturities, the fair value of the debt as of April
18, 1993 is approximately $150.2 million.

The carrying value of the remaining $20.0 million of the senior and the
$20.0 million junior term loans approximates the debt's fair market value as the
rates are variable and are based on current LIBOR.

F-56
<PAGE> 186

CALPINE GEYSERS COMPANY, L.P.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

6. INTEREST RATE SWAP AGREEMENTS:

CGC entered into two interest rate swap agreements to minimize the impact
of changes in interest rates by effectively fixing its interest rate at 9.93
percent on a portion of its senior term note. The interest rate swap agreements
mature through December 31, 2000. CGC is exposed to credit loss in the event of
nonperformance by the other parties to the interest rate swap agreements.

7. COMMITMENTS AND CONTINGENCIES

Royalties and Leases

CGC is committed under several geothermal and right of way leases. The
geothermal leases generally provide for royalties based on production revenue,
with reductions for property taxes paid and the right of way leases are based on
flat rates and are not material. Under the terms of certain geothermal land
leases, royalties accrue at rates ranging from 7 percent to 12.5 percent of
electricity, steam and effluent revenue, net of property taxes. Certain
properties also have net profits and overriding royalty interests ranging from
approximately 1.7 percent to 23.5 percent, which are in addition to the land
lease royalties. CGC also has a working interest agreement with a third party
providing for the sharing of approximately 30 percent of drilling and other well
costs, various percentages of other operating costs and 30 percent of revenues
on specified wells of Unit 13 and Unit 16.

Most lease agreements contain clauses providing for minimum lease payments
to leaseholders if production temporarily ceases or if production falls below a
specified level.

Expenses under these agreements for the period from January 1, 1993 to
April 18, 1993 are as follows:

<TABLE>
<S> <C>
Production royalties............................................. $3,150,076
Lease payments................................................... 119,081
</TABLE>

Litigation

CGC is a party to lawsuits and claims arising out of the normal course of
business, principally related to royalty interests on geothermal property sites.
Management believes that the outcome of these claims and lawsuits will not have
a material adverse effect on CGC's financial position and results of operations.

8. RELATED PARTY TRANSACTIONS

The power plants and steam fields of CGC are operated by Calpine Operating
Plant Services, Inc. ("COPS"), wholly owned by Calpine Corporation, under an
Operating and Maintenance Agreement. Under the agreement, COPS is obligated to
perform all operation and maintenance services in connection with the business,
including operation, repair and maintenance of the power plants and steam
fields, arranging for new well drilling, providing administrative and billing
services, and performing technical analyses and contract administration.

For performance of these services, COPS is reimbursed for its direct costs
plus a general and administrative recovery rate of 12 percent for direct labor
costs, 10 percent for specific costs, and 5 percent for capital expenditures up
to $5.0 million per year, then 2 percent for additional capital expenditures. In
addition, the contract also includes an annual operating fee of $1.0 million,
escalating in relation to the Consumer Price Index. During the period from
January 1, 1993 to April 18, 1993, total charges under the Operating and
Maintenance Agreement amounted to approximately $7.1 million, including
approximately $3.7 million for capital expenditures.

F-57
<PAGE> 187

CALPINE GEYSERS COMPANY, L.P.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Calpine also charges CGC directly for expenses in connection with its
duties as general partner, and for technical and administrative services. During
the period from January 1, 1993 to April 18, 1993, charges amounted to
approximately $185,000.

FMRP has a royalty interest in one of the properties in production. During
the period from January 1, 1993 to April 18, 1993, production royalty expense
related to FMRP amounted to approximately $397,000.

9. SIGNIFICANT CUSTOMERS AND SUMMARY OF OPERATIONS:

CGC's revenue is derived primarily from two sources -- Pacific Gas and
Electric ("PG&E") and Sacramento Municipal Utility District ("SMUD"). Revenue
for the period from January 1, 1993 to April 18, 1993 is as follows:

<TABLE>
<S> <C>
PG&E............................................................ $17,323,683
SMUD............................................................ 3,830,533
-----------
21,154,216
Less revenues deferred.......................................... (395,100)
-----------
Total................................................. $20,759,116
===========
</TABLE>

Operating Geothermal Power Plants

Electricity from CGC's two operating geothermal power plants, Bear Canyon
and West Ford Flat, is sold to PG&E under the terms of twenty-year contracts
which began in 1989.

Under the terms of the contracts, CGC is paid for energy delivered based
upon a fixed price which escalates annually for the first ten years of the
contract and upon PG&E's full short-run avoided operating costs for the second
ten years.

CGC also receives capacity payments from PG&E. Under certain circumstances,
if CGC is unable to deliver firm capacity, then CGC may owe PG&E certain minimum
damages, as specified in the contracts.

Geothermal Steam Fields

Steam from CGC's three geothermal steam fields is sold to PG&E and SMUD
under contracts. PG&E is obligated to operate the plants (Unit 13 and Unit 16)
as close to full capacity and as continuously as possible. SMUD is obligated to
make its best effort to continuously accept steam generated by the plant, except
during outages.

Under the terms of the PG&E contract, the price paid for steam is adjusted
annually based upon prices paid by PG&E for fossil fuels (oil and natural gas)
and nuclear fuel. Under the terms of the SMUD contract, the price paid for steam
is adjusted bi-annually based upon inflation and price indices reflecting the
economy and the cost of fuel.

The contracts with both PG&E and SMUD also provide that CGC receive an
additional amount per mwh of net output as compensation for the cost of
disposing of liquid effluents, primarily steam condensate.

In the event the quantity of steam delivered at any of the plants is less
than 50 percent of the units rated capacity during any given month, PG&E or SMUD
is not required to pay for steam delivered during such month until the cost of
the power plants has been completely amortized.

The contracts may be terminated upon written notice under conditions
specified in the contract if further operation of the plants becomes
uneconomical. In the event that the contract is terminated by CGC, and if
requested by either PG&E or SMUD, CGC must assign to PG&E (Unit 13 and Unit 16)
or SMUD (SMUDGEO #1) all rights, title and interest to the wells, lands and
related facilities.

F-58
<PAGE> 188

REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholder of LFC No. 38 Corp. and Portsmouth Leasing Corporation:

We have audited the accompanying combined balance sheets of LFC No. 38 Corp. and
Portsmouth Leasing Corporation and Subsidiaries as of December 31, 1994 and
1993, and the related combined statements of operations, changes in
shareholder's deficiency and cash flows for the years then ended. These
financial statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of LFC No. 38 Corp. and
Portsmouth Leasing Corporation and Subsidiaries as of December 31, 1994 and
1993, and the combined results of their operations and their cash flows for the
years then ended in conformity with generally accepted accounting principles.

As discussed in Note 4 to the financial statements, the Companies changed their
method of accounting for income taxes in 1993.

COOPERS & LYBRAND L.L.P.

2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 3, 1995, except
as to the information presented
in Note 7 for which the date is
March 30, 1995

F-59
<PAGE> 189

LFC NO. 38 CORP. AND PORTSMOUTH LEASING CORPORATION AND SUBSIDIARIES

COMBINED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1993
----------- -----------
<S> <C> <C>
ASSETS
Current assets
Cash and equivalents............................................ $ 2,986,606 $ 3,911,692
Accounts receivable............................................. 1,888,467 1,774,335
Other current assets............................................ 74,729 145,754
----------- -----------
Total current assets.................................... 4,949,802 5,831,781
Power production facility, less accumulated depreciation of
$6,086,660 and $5,057,568, respectively......................... 24,228,646 25,239,115
Project development rights, less accumulated amortization of
$1,093,026 and $915,778, respectively........................... 4,287,918 4,465,166
Deferred costs, less accumulated amortization of $1,335,381 and
$1,215,708, respectively........................................ 712,224 831,898
Land.............................................................. 340,938 340,938
----------- -----------
Total assets............................................ $34,519,528 $36,708,898
=========== ===========
LIABILITIES AND SHAREHOLDER'S DEFICIENCY
Current liabilities
Accounts payable and accrued liabilities........................ $ 1,372,360 $ 1,606,528
Accrued interest payable........................................ 136,294 245,135
Notes payable................................................... 1,819,071 1,633,676
Due to affiliates............................................... 224,413 555,185
----------- -----------
Total current liabilities............................... 3,552,138 4,040,524
Notes payable..................................................... 26,767,423 28,553,740
Liability for major maintenance................................... 1,850,728 1,266,518
Deferred income taxes............................................. 9,233,673 8,613,266
----------- -----------
Total liabilities....................................... 41,403,962 42,474,048
----------- -----------
Shareholder's deficiency
Common stock $1 par value, 2,000 shares authorized,
2,000 shares issued.......................................... 2,000 2,000
Capital in excess of par value.................................. 1,279 1,279
Accumulated deficit............................................. (565,743) (1,668,429)
----------- -----------
(562,464) (1,665,150)
Advances to affiliates.......................................... (6,321,970) (4,100,000)
----------- -----------
Total shareholder's deficiency.......................... (6,884,434) (5,765,150)
----------- -----------
Total liabilities and shareholder's deficiency.......... $34,519,528 $36,708,898
=========== ===========
</TABLE>

See Accompanying Notes to Combined Financial Statements

F-60
<PAGE> 190

LFC NO. 38 CORP. AND PORTSMOUTH LEASING CORPORATION AND SUBSIDIARIES

COMBINED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1993
----------- -----------
<S> <C> <C>
Revenues
Power sales....................................................... $17,431,700 $18,134,824
Interest income................................................... 234,154 89,318
----------- -----------
17,665,854 18,224,142
----------- -----------
Expenses
Operating costs................................................... 12,702,761 9,271,110
Depreciation and amortization..................................... 1,338,734 1,515,297
Interest expense.................................................. 1,738,152 1,740,675
----------- -----------
15,779,647 12,527,082
----------- -----------
Income before income taxes.......................................... 1,886,207 5,697,060
Income tax provision................................................ 783,521 2,307,233
----------- -----------
Income before cumulative effect of change in accounting principle... 1,102,686 3,389,827
Cumulative effect of change in accounting for income taxes.......... -- (5,108,294)
----------- -----------
Net income (loss)......................................... $ 1,102,686 $(1,718,467)
=========== ===========
</TABLE>

See Accompanying Notes to Combined Financial Statements

F-61
<PAGE> 191

LFC NO. 38 CORP. AND PORTSMOUTH LEASING CORPORATION AND SUBSIDIARIES

COMBINED STATEMENTS OF CHANGES IN SHAREHOLDER'S DEFICIENCY
(FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993)

<TABLE>
<CAPTION>
RETAINED
CAPITAL IN EARNINGS SHAREHOLDER'S
COMMON EXCESS OF (ACCUMULATED ADVANCES TO EQUITY
STOCK PAR VALUE DEFICIT) AFFILIATES (DEFICIENCY)
------ ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992............. $2,000 $1,279 $ 50,038 -- $ 53,317
Advance to affiliates.................. -- -- -- $(4,100,000) (4,100,000)
Net loss............................... -- -- (1,718,467) -- (1,718,467)
------ ------ --------- ---------- ----------
Balance, December 31, 1993............. 2,000 1,279 (1,668,429) (4,100,000) (5,765,150)
Advance to affiliates.................. -- -- -- (2,221,970) (2,221,970)
Net income............................. -- -- 1,102,686 -- 1,102,686
------ ------ --------- ---------- ----------
Balance, December 31, 1994............. $2,000 $1,279 $ (565,743) $(6,321,970) $ (6,884,434)
====== ====== ========= ========== ==========
</TABLE>

See Accompanying Notes to Combined Financial Statements

F-62
<PAGE> 192

LFC NO. 38 CORP. AND PORTSMOUTH LEASING CORPORATION AND SUBSIDIARIES

COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1994 1993
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net income (loss)............................................... $ 1,102,686 $(1,718,467)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities
Depreciation and amortization................................ 1,338,734 1,515,297
Provision for major maintenance.............................. 584,210 710,872
Payments for major maintenance............................... -- (814,244)
Cumulative effect of change in accounting for income taxes... -- 5,108,294
Deferred income taxes........................................ 620,408 2,306,433
Changes in operating assets and liabilities
Accounts receivable........................................ (114,132) 476,265
Due to affiliates.......................................... (330,771) (161,838)
Accounts payable and accrued liabilities................... (234,169) (1,862,005)
Other current assets....................................... 71,025 (20,955)
Accrued interest payable................................... (108,842) (23,990)
----------- -----------
Net cash provided by operating activities....................... 2,929,149 5,515,662
----------- -----------
Cash flows used in investing activities
Investment in power production facility......................... (31,343) (10,433)
----------- -----------
Cash flows used in financing activities
Repayment of financing.......................................... (1,600,922) (1,416,935)
Advances to affiliates.......................................... (2,221,970) (4,100,000)
----------- -----------
Net cash used in financing activities........................... (3,822,892) (5,516,935)
----------- -----------
Net decrease in cash and equivalents.............................. (925,086) (11,706)
Cash and equivalents -- beginning of period....................... 3,911,692 3,923,398
----------- -----------
Cash and equivalents -- end of period............................. $ 2,986,606 $ 3,911,692
=========== ===========
</TABLE>

See Accompanying Notes to Combined Financial Statements

F-63
<PAGE> 193

LFC NO. 38 CORP. AND PORTSMOUTH LEASING CORPORATION AND SUBSIDIARIES

NOTES TO COMBINED FINANCIAL STATEMENTS

NOTE 1 -- THE PARTNERSHIP AND THE PROJECT

LFC No. 38 Corp. (the "Limited Partner"), a Delaware corporation, is the
sole Limited Partner and Greenleaf Unit One Associates, Inc. (the "General
Partner"), a California corporation, is the sole General Partner (collectively
the "Partners") of Greenleaf Unit One Associates, L.P. (the "Partnership"), a
California Limited Partnership. Portsmouth Leasing Corporation ("Portsmouth"), a
Delaware corporation, is the sole owner of the General Partner. Portsmouth and
the Partners are wholly owned subsidiaries of Radnor Energy Partners, L.P.
("L.P."). L.P. is, in turn, a majority-owned subsidiary of LFC Financial Corp
("Financial"). The combined financial statements include the accounts of the
Partners, the Partnership, and Portsmouth (collectively the "Company") after
elimination of all material intercompany balances and transactions.

The Partnership owns and operates a 49.5 megawatt natural gas fired
cogeneration facility located in Yuba City, California (the "Project"). The
facility, which was completed in March 1989, produces electrical power which it
sells to Pacific Gas and Electric Company ("PG&E") pursuant to a power purchase
agreement that provides for electricity and capacity payments over a thirty-year
period. The exhaust gas generated by the Project is used to dry wood chips. The
wood drying facility is operated by Wood Fuel Processing, Inc. ("WFP") pursuant
to a processing facilities agreement. The agreement provides that WFP will pay
certain royalties to the Partnership in the future based on the profitability of
the wood drying operation. Operations and maintenance of the Project is
performed by Stockmar Energy Inc., which does business as LFC Power Systems
Corporation ("Power Systems"), an affiliate. Power Systems is a wholly owned
subsidiary of LFC Energy Corporation ("Energy"), which, in turn, is a
majority-owned subsidiary of Financial.

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Power Production Facility -- The power production facility, which was
constructed by Power Systems, includes the cogeneration plant (including the
wood drying facility) and the related equipment and is stated at cost.
Depreciation is recorded utilizing the straight-line method over the estimated
useful life of the Project of thirty years. Upon disposition, the cost and
related accumulated depreciation of equipment removed from the accounts and the
resulting gain (loss) is included in gains (losses) on equipment sales for the
period.

Project Development Rights -- The Project development rights include all of
the essential contracts, agreements, permits, licenses and other agreements
which were required to construct and operate the Project, as well as the
preliminary design of the Project, the power purchase agreement, the FERC
certification and other contracts and agreements. These Project development
rights are being amortized by the Partnership over a thirty-year period.

Deferred Costs -- Deferred costs include lender, legal, and other
professional fees incurred in connection with the acquisition and construction
of the Project and pre-operating expenses which were capitalized. Capitalized
fees are amortized over their estimated useful lives and pre-operating expenses
are amortized over sixty months.

Major Maintenance -- Major maintenance costs are accrued ratably over the
scheduled maintenance period and are included in operating costs. Costs
anticipated to be incurred within the next twelve months are classified as a
current liability.

F-64
<PAGE> 194

LFC NO. 38 CORP. AND PORTSMOUTH LEASING CORPORATION AND SUBSIDIARIES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

income taxes on a separate return basis. In addition, the Company has a tax
sharing arrangement with L.P. that provides to the extent that net operating
loss or investment tax credit carryforwards are not utilized by the Company on a
separate return basis, but are utilized in the consolidated tax return of L.P.,
the Company will receive a portion of these tax benefits. These payments will be
classified as capital in excess of par value.

Statements of Cash Flows -- The Company considers all highly liquid
investments with a maturity of three months or less to be cash equivalents for
purposes of the statement of cash flows. Net cash provided by operating
activities includes cash payments for interest of $1,846,993 and $1,764,666 in
1994 and 1993, respectively.

NOTE 3 -- NOTES PAYABLE

Notes payable at December 31, 1994 and 1993 consist of the following:

<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Note payable -- Bank...................................... $25,996,000 $27,507,000
Note payable -- Individuals............................... 2,590,494 2,680,416
----------- -----------
Total........................................... $28,586,494 $30,187,416
Less current portion...................................... 1,819,071 1,633,676
----------- -----------
Noncurrent portion........................................ $26,767,423 $28,553,740
=========== ===========
</TABLE>

The Partnership's note payable is payable pursuant to a credit agreement
with the New York branch of Credit Suisse ("Credit Suisse") and is
collateralized by substantially all of the Partnership's assets. The credit
agreement contains certain restrictive covenants including the maintenance of
certain debt service coverage ratios, working capital requirements, and
limitations on distributions. In addition, all cash and equivalents are
maintained in accounts at Credit Suisse. The loan bears interest at variable
rates or fixed rates at the option of the Partnership. The effective interest
rate on the loan was 8.05% at December 31, 1994. The loan is being repaid over
ten years, commencing in 1990, in level quarterly debt service payments on a
fourteen-year amortization schedule with a balloon payment at the end of the
tenth year.

The note payable-individuals is payable pursuant to a sale/purchase
agreement with the former owners of the General Partner. The loan bears interest
at a fixed rate of 8.25%. The loan is scheduled to be repaid in twenty (20)
annual installments plus interest, with each payment being based upon 1.59% of
power sales. If the obligation is repaid prior to maturity, the Company must
continue the payments as defined until the payment period ends, 2010.

The required principal payments by year are as follows:

<TABLE>
<S> <C>
1995....................................................... $ 1,819,071
1996....................................................... 2,016,092
1997....................................................... 2,231,533
1998....................................................... 2,529,127
1999....................................................... 2,794,776
2000....................................................... 16,092,618
Thereafter................................................. 1,103,277
-----------
Total............................................ $28,586,494
===========
</TABLE>

F-65
<PAGE> 195

LFC NO. 38 CORP. AND PORTSMOUTH LEASING CORPORATION AND SUBSIDIARIES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 4 -- INCOME TAXES

Effective January 1, 1993, the Company adopted SFAS109, which requires the
liability method of accounting for income taxes. The cumulative effect of the
change in method of accounting for income taxes of $5,108,294 was reported in
the 1993 statement of operations and as an increase in the net deferred tax
liability at January 1, 1993.

The income tax provision is comprised of the following:

<TABLE>
<CAPTION>
1994 1993
-------- ----------
<S> <C> <C>
Current
State...................................................... $ 26,944 $ 800
Federal.................................................... 136,169 --
Deferred
State...................................................... 175,417 529,827
Federal.................................................... 444,991 1,776,606
-------- ----------
Total $783,521 $2,307,233
======== ==========
</TABLE>

The provision for income taxes as a percentage of income before income tax
can be reconciled to the federal statutory rate as follows:

<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Federal statutory tax rate............................................. 34% 34%
State tax, net of federal benefit...................................... 6% 6%
Other.................................................................. 2% --
-- -
---
Provision for income taxes............................................. 42% 40%
=== ===
</TABLE>

The net deferred tax liability (determined in accordance with SFAS109)
consists of:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1993
----------- -----------
<S> <C> <C>
Deferred tax liabilities:
Accumulated depreciation................................ $10,872,804 $11,353,409
----------- -----------
Deferred tax assets:
Liability for major maintenance......................... 742,845 508,355
Investment tax credit carryforward...................... 821,862 1,254,862
Net operating loss carryforward......................... 74,424 976,926
----------- -----------
1,639,131 2,740,143
----------- -----------
Net deferred tax liability................................ $ 9,233,673 $ 8,613,266
=========== ===========
</TABLE>

As of December 31, 1994, the Company had, on a separate company basis, a
state net operating loss carryforward of $800,260 which expires in 1996 through
1999 and investment tax credit carryforwards of $821,862 which expires in 2003.

NOTE 5 -- RELATED PARTIES AND OPERATING COSTS

The Partnership incurred operating costs through Power Systems of
$1,976,599 and $1,910,189 in 1994 and 1993, respectively. The Partnership's 1994
and 1993 operating costs include $3,264,328 and $2,680,216, respectively, for
the purchase of natural gas from affiliates. Affiliates also provided gathering,
transportation and fuel management services at a cost of $2,328,028 and $725,000
to the Partnership in 1994 and 1993,

F-66
<PAGE> 196

LFC NO. 38 CORP. AND PORTSMOUTH LEASING CORPORATION AND SUBSIDIARIES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

respectively. The Partnership incurred $1,307,649 and $104,114 in 1994 and 1993,
respectively, for management services provided by L.P.

NOTE 6 -- COMMON STOCK

The combined common stock of the Company as of December 31, 1994 and 1993
consists of the following:

<TABLE>
<CAPTION>
CAPITAL
SHARES IN
AUTHORIZED $1 PAR EXCESS OF
AND ISSUED VALUE PAR VALUE
---------- ------ ---------
<S> <C> <C> <C>
LFC No. 38 Corp....................................... 1,000 $1,000 --
Portsmouth Leasing Corporation........................ 1,000 1,000 $ 1,279
----- ------ ------
Total....................................... 2,000 $2,000 $ 1,279
===== ====== ======
</TABLE>

NOTE 7 -- SUBSEQUENT EVENTS

On March 30, 1995, Financial entered into a stock purchase agreement to
sell the stock of the Company to Calpine Corporation. The transaction is
scheduled to close by April 28, 1995. No effect of the proposed sale has been
recognized in the accompanying financial statements.

F-67
<PAGE> 197

REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholder of LFC No. 60 Corp.:

We have audited the accompanying consolidated balance sheets of LFC No. 60 Corp.
and Subsidiary as of December 31, 1994 and 1993, and the related consolidated
statements of operations, changes in shareholder's deficiency and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of LFC No. 60 Corp.
and Subsidiary as of December 31, 1994 and 1993, and the consolidated results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.

As discussed in Note 4 to the financial statements, the Company changed its
method of accounting for income taxes in 1993.

COOPERS & LYBRAND L.L.P.

2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 3, 1995, except
as to the information presented
in Note 6 for which the date is
March 30, 1995

F-68
<PAGE> 198

LFC NO. 60 CORP. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1993
----------- -----------
<S> <C> <C>
ASSETS
Current assets
Cash and equivalents............................................ $ 2,088,588 $ 2,491,825
Accounts receivable, net of allowance for doubtful accounts of
$200,000 in 1993............................................. 2,076,594 1,967,998
Due from affiliates............................................. 776,253 --
Prepaid assets.................................................. 513,954 266,690
----------- -----------
Total current assets.................................... 5,455,389 4,726,513
Power production facility, less accumulated depreciation of
$5,430,948 and $4,339,447, respectively......................... 26,636,147 27,711,561
Project development rights, less accumulated amortization of
$330,417 and $265,417, respectively............................. 1,619,583 1,684,583
Deferred costs, less accumulated amortization of $1,410,676 and
$1,148,992, respectively........................................ 580,706 842,390
----------- -----------
Total assets............................................ $34,291,825 $34,965,047
=========== ===========
LIABILITIES AND SHAREHOLDER'S DEFICIENCY
Current liabilities
Accounts payable and accrued liabilities........................ $ 1,785,800 $ 882,746
Due to affiliates............................................... -- 634,451
Accrued interest payable........................................ 13,972 131,200
Note payable.................................................... 600,000 600,000
Liability for major maintenance................................. -- 969,996
----------- -----------
Total current liabilities............................... 2,399,772 3,218,393
Note payable...................................................... 31,600,000 32,200,000
Liability for major maintenance................................... 1,737,908 1,273,328
Deferred income taxes............................................. 6,368,319 5,764,303
----------- -----------
Total liabilities....................................... 42,105,999 42,456,024
----------- -----------
Shareholder's deficiency
Common stock $1 par value, authorized, issued and outstanding --
1,000 shares................................................. 1,000 1,000
Capital in excess of par value.................................. 1,199,000 1,199,000
Deficit......................................................... (395,931) (1,290,977)
----------- -----------
804,069 (90,977)
Advances to affiliates.......................................... (8,618,243) (7,400,000)
----------- -----------
Total shareholder's deficiency.......................... (7,814,174) (7,490,977)
----------- -----------
Total liabilities and shareholder's deficiency.......... $34,291,825 $34,965,047
=========== ===========
</TABLE>

See Accompanying Notes to Consolidated Financial Statements

F-69
<PAGE> 199

LFC NO. 60 CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1994 1993
----------- -----------
<S> <C> <C>
Revenues
Power sales..................................................... $18,495,832 $19,223,155
Steam sales..................................................... 61,780 62,496
Interest income................................................. 155,715 68,247
----------- -----------
18,713,327 19,353,898
----------- -----------
Expenses
Operating costs................................................. 13,961,525 12,620,397
Depreciation and amortization................................... 1,418,185 1,436,668
Interest expense................................................ 1,773,839 1,702,354
----------- -----------
17,153,549 15,759,419
----------- -----------
Income before income taxes........................................ 1,559,778 3,594,479
Income tax provision.............................................. (664,732) (1,616,815)
----------- -----------
Income before cumulative effect of change in accounting
principle....................................................... 895,046 1,977,664
Cumulative effect of change in accounting for income taxes........ -- (2,773,609)
----------- -----------
Net income (loss)................................................. $ 895,046 $ (795,945)
=========== ===========
</TABLE>

See Accompanying Notes to Consolidated Financial Statements

F-70
<PAGE> 200

LFC NO. 60 CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S DEFICIENCY
(FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993)

<TABLE>
<CAPTION>
CAPITAL IN
COMMON EXCESS OF ADVANCES TO
STOCK PAR VALUE DEFICIT AFFILIATES TOTAL
------ ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1992.... $1,000 $1,199,000 $ (495,032) $(3,600,000) $(2,895,032)
Net loss..................... -- -- (795,945) -- (795,945)
Advance to affiliates........ -- -- -- (3,800,000) (3,800,000)
------ ---------- ----------- ----------- -----------
Balance December 31, 1993.... 1,000 1,199,000 (1,290,977) (7,400,000) (7,490,977)
Net income................... -- -- 895,046 -- 895,046
Advance to affiliates........ -- -- -- (1,218,243) (1,218,243)
------ ---------- ----------- ----------- -----------
Balance, December 31, 1994... $1,000 $1,199,000 $ (395,931) $(8,618,243) $(7,814,174)
====== ========= ========== ========== ==========
</TABLE>

See Accompanying Notes to Consolidated Financial Statements

F-71
<PAGE> 201

LFC NO. 60 CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1993
----------- -----------
<S> <C> <C>
Cash flows from operating expenses
Net income (loss)............................................... $ 895,046 $ (795,945)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities
Depreciation and amortization................................ 1,418,185 1,436,668
Provision for major maintenance.............................. 331,134 818,329
Payments for major maintenance............................... (836,550) --
Provision for doubtful accounts.............................. -- 200,000
Cumulative effect of change in accounting principle.......... -- 2,773,609
Deferred income tax provision................................ 604,016 1,364,083
Changes in operating assets and liabilities
Accounts receivable........................................ (108,595) 41,995
Due from affiliates........................................ (1,410,704) (112,443)
Accounts payable and accrued liabilities................... 903,054 (1,184,769)
Prepaid assets............................................. (247,264) (19,510)
Accrued interest payable................................... (117,228) (20,866)
----------- -----------
Net cash provided by operating activities....................... 1,431,094 4,501,151
----------- -----------
Cash flows used in investing activities
Investment in power production facility......................... (16,088) (21,968)
----------- -----------
Cash flows used in financing activities
Repayment of financing.......................................... (600,000) (600,000)
Advances to affiliates.......................................... (1,218,243) (3,800,000)
----------- -----------
Net cash used in financing activities........................... (1,818,243) (4,400,000)
----------- -----------
Net increase (decrease) in cash and equivalents................... (403,237) 79,183
Cash and equivalents -- beginning of period....................... 2,491,825 2,412,642
----------- -----------
Cash and equivalents -- end of period............................. $ 2,088,588 $ 2,491,825
=========== ===========
</TABLE>

See Accompanying Notes to Consolidated Financial Statements

F-72
<PAGE> 202

LFC NO. 60 CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- THE COMPANY AND THE PROJECT

LFC No. 60 Corp., a Delaware corporation, is a wholly-owned subsidiary of
Radnor Energy Partners, L.P. ("L.P."). L.P. is, in turn, a majority-owned
subsidiary of LFC Financial Corp ("Financial"). LFC No. 60 Corp. owns 100% of
the Greenleaf Unit Two Associates, Inc. ("GUTA"). The consolidated financial
statements include the accounts of LFC No. 60 Corp. and GUTA (the "Company")
after elimination of all material intercompany balances and transactions.

GUTA is a California corporation which owns and operates a 49.5 megawatt
natural gas fired cogeneration plant located in Yuba City, California (the
"Project"). The facility, which was completed in December 1989, produces
electrical power which it sells to Pacific Gas and Electric Company ("PG&E")
pursuant to a power purchase agreement that provides for electricity and
capacity payments over a thirty year period. The steam produced by the Project
is sold to Sunsweet Growers, Inc. under a long-term steam purchase agreement.
Operations and maintenance of the Project is performed by Stockmar Energy Inc.,
which does business as LFC Power Systems Corporation ("Power Systems"), an
affiliate. Power Systems is a wholly-owned subsidiary of LFC Energy Corporation
("Energy"), which, in turn, is a majority-owned subsidiary of Financial.

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Power Production Facility -- The power production facility, which was
constructed by Power Systems, includes the cogeneration plant and the related
equipment and is stated at cost. Depreciation is recorded utilizing the
straight-line method over the estimated useful life of the Project of thirty
years. Upon disposition, the cost and related accumulated depreciation of
equipment is removed from the accounts and the resulting gain (loss) is included
in gains (losses) on equipment sales for the period.

Project Development Rights -- The Project development rights include all of
the essential contracts, agreements, permits, licenses and other agreements
which were required to construct and operate the Project as well as the
preliminary design of the Project, the power purchase agreement, the FERC
certification and other contracts and agreements. These Project development
rights are being amortized by the Company over a thirty-year period.

Income Taxes -- Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109 -- "Accounting For Income Taxes" ("SFAS
109"). SFAS109 requires the recognition of deferred income tax liabilities and
assets for the future tax consequences of transactions that have been recognized
for financial reporting or income tax purposes and includes a requirement for
adjustment of deferred tax balances for tax rate changes. The Company joins with
L.P. and affiliated companies in the filing of a consolidated U.S. federal
income tax return. The Company's policy is to provide for federal and state
income taxes on a separate return basis. In addition, the Company has a tax
sharing arrangement with L.P. that provides to the extent that net operating
loss or investment tax credit carryforwards are not utilized by the Company on a
separate return basis, but are utilized in the consolidated tax return of L.P.,
the Company will receive a portion of these tax benefits. These payments will be
classified as capital in excess of par value.

F-73
<PAGE> 203

LFC NO. 60 CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Statements of Cash Flows -- The Company considers all highly liquid
investments purchased with a maturity of three months or less to be cash
equivalents for purposes of the statement of cash flows. Net cash provided by
operating activities includes cash payments for interest of $1,891,067 and
$1,723,220 in 1994 and 1993, respectively.

NOTE 3 -- NOTE PAYABLE

The Company's note payable is payable pursuant to a credit agreement with
the New York branch of Credit Suisse ("Credit Suisse") and is collateralized by
substantially all of the Company's assets. The credit agreement contains certain
restrictive covenants including the maintenance of certain debt service coverage
ratios, working capital requirements, and limitations on distributions. In
addition, all cash and equivalents are maintained in accounts at Credit Suisse.
The note bears interest at variable or fixed rates at the option of the Company.
The effective interest rate on the note was 7.81% at December 31, 1994. The note
is being repaid in quarterly payments through 2005.

The required principal payments by year are as follows:

<TABLE>
<S> <C>
1995....................................................... $ 600,000
1996....................................................... 600,000
1997....................................................... 600,000
1998....................................................... 2,000,000
1999....................................................... 2,500,000
Thereafter................................................. 25,900,000
-----------
Total................................................. $32,200,000
===========
</TABLE>

NOTE 4 -- INCOME TAXES

Effective January 1, 1993, the Company adopted SFAS 109, which requires the
liability method of accounting for income taxes. The cumulative effect of the
change in method of accounting for income taxes of $2,773,609 was reported in
the 1993 statement of operations and as an increase in the net deferred tax
liability at January 1, 1993.

The income tax provision is comprised of the following:

<TABLE>
<CAPTION>
1994 1993
-------- ----------
<S> <C> <C>
Deferred
Federal.................................................... $490,009 $1,293,236
State...................................................... 114,007 70,847
Current -- State............................................. 60,716 252,732
-------- ----------
Total.............................................. $664,732 $1,616,815
======== ==========
</TABLE>

The provision for income taxes as a percentage of income before income
taxes can be reconciled to the federal statutory rate as follows:

<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Federal statutory tax rate............................................. 34% 34%
State Tax.............................................................. 8% 6%
Other.................................................................. 1% 5%
-- --
Provision for income taxes........................................... 43% 45%
== ==
</TABLE>

F-74
<PAGE> 204

LFC NO. 60 CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The net deferred tax liability (determined in accordance with SFAS109)
consists of:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1994 1993
---------- ----------
<S> <C> <C>
Deferred tax liabilities:
Accumulated depreciation.................................. $9,123,465 $8,509,818
---------- ----------
Deferred tax assets:
Liability for major maintenance........................... 713,324 922,858
Investment tax credit carryforward........................ 1,333,448 1,333,448
Net operating loss carryforward........................... 708,374 418,977
Other..................................................... -- 70,232
---------- ----------
2,755,146 2,745,515
---------- ----------
Net deferred tax liability.................................. $6,368,319 $5,764,303
========== ==========
</TABLE>

As of December 31, 1994, the Company had a tax net operating loss carry
forward determined on a separate company basis of $2,023,928 which expires in
2007 through 2009. As of December 31, 1994, the Company had ITC carryforwards
determined on a separate company basis of $1,333,448 which expire in 2004.

NOTE 5 -- RELATED PARTIES AND OPERATING COSTS

The Company incurred operating costs of $1,610,780 and $2,330,001 through
Power Systems in 1994 and 1993, respectively. The Company's 1994 and 1993
operating costs include $1,088,550 and $1,421,558, respectively, for the
purchase of natural gas from affiliates. Affiliates provided gathering,
transportation and fuel management services at a cost of $2,181,758 and $400,000
in 1994 and 1993, respectively. The Company incurred $1,307,465 and $104,106 in
1994 and 1993, respectively, for management services provided by L.P.

NOTE 6 -- SUBSEQUENT EVENT

On March 30, 1995, Financial entered into a stock purchase agreement to
sell the stock of the Company and certain affiliates to Calpine Corporation. The
transaction is scheduled to close by April 28, 1995. No effect of the proposed
sale has been recognized in the accompanying financial statements.

F-75
<PAGE> 205

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the General Partner of
BAF Energy, A California Limited Partnership:

We have audited the accompanying balance sheets of BAF Energy, A California
Limited Partnership, as of October 31, 1995 and 1994, and the related statements
of income, partners' equity and cash flows for each of the three years ended
October 31, 1995, 1994 and 1993. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of BAF Energy, A California
Limited Partnership, as of October 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the three years ended October 31,
1995, 1994 and 1993 in conformity with generally accepted accounting principles.

As explained in Note 1 to the financial statements, effective November 1,
1994, the Company changed its method of accounting for investments.

As discussed in Note 8 to the financial statements, subsequent to October
31, 1995, the Partnership signed a letter agreement with a third party to lease
substantially all of its property, plant and equipment and assign all related
contracts to a third party.

ARTHUR ANDERSEN LLP

San Francisco, California
December 6, 1995

F-76
<PAGE> 206

BAF ENERGY,
A CALIFORNIA LIMITED PARTNERSHIP

BALANCE SHEETS
OCTOBER 31, 1995 AND 1994

<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................... $ 3,757,921 $ 5,363,057
Available for sale securities................................. 1,919,184 --
Restricted available-for-sale securities...................... 7,241,305 12,332,244
Accounts receivable -- trade.................................. 10,916,919 5,277,413
Supplies inventory............................................ 2,153,129 2,060,935
Prepaid insurance............................................. 288,383 251,375
------------ ------------
Total current assets.................................. 26,276,841 25,285,024
------------ ------------
Property, plant and equipment................................... 100,258,434 100,210,960
Accumulated depreciation and amortization..................... (24,387,912) (20,854,389)
------------ ------------
75,870,522 79,356,571
------------ ------------
Total assets.......................................... $102,147,363 $104,641,595
============ ============
LIABILITIES AND PARTNERS' EQUITY
Current liabilities
Accounts payable.............................................. $ 1,598,177 $ 2,824,110
Interest payable.............................................. 1,309,566 1,396,495
Payable to affiliate.......................................... 166,569 615,881
Current portion of long-term liabilities...................... 5,444,386 5,283,785
------------ ------------
Total current liabilities............................. 8,518,698 10,120,271
------------ ------------
Long-term liabilities........................................... 66,804,704 71,157,714
------------ ------------
Commitments and contingencies (Note 6)
Partners' equity:
Contributed equity............................................ 9,901,600 9,901,600
Undistributed earnings........................................ 16,922,361 13,462,010
------------ ------------
Total partners' equity................................ 26,823,961 23,363,610
------------ ------------
Total liabilities and partners' equity................ $102,147,363 $104,641,595
============ ============
</TABLE>

The accompanying notes are an integral part of these statements.

F-77
<PAGE> 207

BAF ENERGY,
A CALIFORNIA LIMITED PARTNERSHIP

STATEMENTS OF INCOME
FOR THE YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993

<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Operating Revenues.................................. $43,835,619 $47,955,622 $49,738,504
Operating Expenses:
Fuel.............................................. 9,193,490 14,079,684 16,449,118
Depreciation and amortization..................... 3,578,572 3,575,442 3,576,710
Labor, supplies and other......................... 6,614,543 6,959,891 6,343,755
----------- ----------- -----------
Total operating expenses.................. 19,386,605 24,615,017 26,369,583
----------- ----------- -----------
Operating income.......................... 24,449,014 23,340,605 23,368,921
----------- ----------- -----------
Other Income and Expense:
Interest income and other......................... 955,299 477,666 448,961
General and administrative........................ (773,610) (784,401) (653,373)
Interest expense.................................. (8,165,273) (8,654,453) (9,091,695)
----------- ----------- -----------
Total other income and expense............ (7,983,584) (8,961,188) (9,296,107)
----------- ----------- -----------
Partnership Income.................................. $16,465,430 $14,379,417 $14,072,814
=========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these statements.

F-78
<PAGE> 208

BAF ENERGY,
A CALIFORNIA LIMITED PARTNERSHIP

STATEMENTS OF PARTNERS' EQUITY
FOR THE YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993

<TABLE>
<CAPTION>
GENERAL LIMITED UNREALIZED TOTAL
PARTNERS' PARTNERS' UNDISTRIBUTED LOSSES ON PARTNERS'
EQUITY EQUITY EARNINGS SECURITIES EQUITY
--------- ---------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance, October 31, 1992.......... $ 100 $9,901,500 $ 13,509,779 $ -- $ 23,411,379
Net income....................... -- -- 14,072,814 -- 14,072,814
Cash distributions............... -- -- (15,000,000) -- (15,000,000)
---- ---------- ------------ ------- ----
Balance, October 31, 1993.......... 100 9,901,500 12,582,593 -- 22,484,193
Net income....................... -- -- 14,379,417 -- 14,379,417
Cash distributions............... -- -- (13,500,000) -- (13,500,000)
---- ---------- ------------ ------- ----
Balance, October 31, 1994.......... 100 9,901,500 13,462,010 -- 23,363,610
Net income....................... -- -- 16,465,430 -- 16,465,430
Cash distributions............... -- -- (13,000,000) -- (13,000,000)
Change in unrealized losses on
available-for-sale
securities.................... -- -- -- (5,079) (5,079)
---- ---------- ------------ ------- ----
Balance, October 31, 1995.......... $ 100 $9,901,500 $ 16,927,440 $ (5,079) $ 26,823,961
==== ========== ============ ======= ====
</TABLE>

The accompanying notes are an integral part of these statements.

F-79
<PAGE> 209

BAF ENERGY,
A CALIFORNIA LIMITED PARTNERSHIP

STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993

<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Partnership income............................. $ 16,465,430 $ 14,379,417 $ 14,072,814
Adjustments to reconcile partnership income to
net cash provided from operating
activities --
Depreciation and amortization............. 3,578,572 3,575,442 3,576,710
Realized (gains) losses on sales of
available-for-sale securities, net..... (465) 10,189 (22,701)
Change in operating assets &
liabilities --
Accounts receivable -- trade........... (5,639,506) 7,560,768 (6,403,581)
Supplies inventory..................... (92,194) (301,309) (11,406)
Prepaid insurance...................... (37,008) (69,663) 4,270
Accounts payable....................... (1,225,933) (1,375,739) 1,516,130
Interest payable....................... (86,929) (77,740) (69,540)
Payable to affiliate................... (449,312) 463,194 (1,130,695)
Other, net............................. (45,049) -- --
---------- ---------- ----------
Net cash provided by operating
activities........................ 12,467,606 24,164,559 11,532,001
---------- ---------- ----------
Cash flows from investing activities:
Purchases of available-for-sale securities..... (34,628,300) (25,334,642) (16,319,709)
Proceeds from sales and maturities of
available-for-sale securities............... 37,795,441 20,232,824 20,074,603
Additions to property, plant and equipment,
net......................................... (47,474) (21,066) (131,924)
---------- ---------- ----------
Net cash provided by (used in)
investing activities.............. 3,119,667 (5,122,884) 3,622,970
---------- ---------- ----------
Cash flows from financing activities:
Reductions of long-term liabilities, net....... (4,192,409) (3,587,576) (3,250,397)
Cash distributions to partners................. (13,000,000) (13,500,000) (15,000,000)
---------- ---------- ----------
Net cash used in financing
activities........................ (17,192,409) (17,087,576) (18,250,397)
---------- ---------- ----------
Net (decrease) increase in cash and cash
equivalents.................................... (1,605,136) 1,954,099 (3,095,426)
Cash and cash equivalents, beginning of year..... 5,363,057 3,408,958 6,504,384
---------- ---------- ----------
Cash and cash equivalents, end of year........... $ 3,757,921 $ 5,363,057 $ 3,408,958
========== ========== ==========
Supplemental disclosure of noncash investing and
financing activities
Unrealized holding losses, net, on
available-for-sale securities, recorded as
additions to undistributed earnings......... $ (5,079) $ -- $ --
</TABLE>

The accompanying notes are an integral part of these statements.

F-80
<PAGE> 210

BAF ENERGY,
A CALIFORNIA LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Organization

Basic American, Inc. (BAI) formed BAF Energy, A California Limited
Partnership (BAF Energy or the Partnership) on March 25, 1986, for the purpose
of developing, constructing and operating a cogeneration facility. The term of
the Partnership is through December 2020 unless terminated earlier in accordance
with the Partnership Agreement. The facility produces and sells electricity and
steam. On December 6, 1995, the Partnership signed a letter agreement with a
third party to lease substantially all of the Partnership's property, plant and
equipment and to assign all related contracts. The third party lessee will
operate the cogeneration facility through April, 2019 (see Note 8).

BAF Energy, Inc. (BEI) is the general partner of the Partnership and has an
ownership interest of 1 percent. BEI is a wholly owned subsidiary of Basic
Vegetable Products, Inc. (BVP). BVP is a wholly owned subsidiary of BAI. As of
October 31, 1995, BAI also owned approximately 51 percent of the Limited
Partnership units of BAF Energy then outstanding.

Distributions and profit and loss are allocated 99 percent to the limited
partners, based on their proportionate share of limited partnership units, and 1
percent to the general partner.

Reclassifications

Certain reclassifications have been made to the 1994 and 1993 financial
statements to be consistent with the current year presentation.

Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include
cash on deposit with banks, money market funds, and commercial paper. Cash paid
for interest during the years ended October 31, 1995, 1994 and 1993 was
$8,252,202, $8,732,052 and $9,161,241, respectively.

Available-for-Sale Securities

Effective November 1, 1994, the Partnership adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" (SFAS 115). The Partnership has classified its investments as
available-for-sale securities and as restricted available-for-sale securities
and has recorded all securities holdings at fair value. Unrealized gains and
losses are reported as a separate component of partners' equity until realized.

Premiums and discounts are amortized over the life of the related security
as an adjustment to interest income using the effective interest method.
Interest income is recognized when earned. Realized gains and losses on
securities transactions are included in net income and are derived using the
specific identification method for determining the cost of securities sold.

Prior to the November 1, 1994 adoption of SFAS 115, the Partnership's
short-term investments were included in cash and short-term investments and were
valued at the lower of aggregate cost or market. Such securities have been
reclassified as available-for-sale securities to conform with SFAS 115
presentation requirements.

The effect of adopting SFAS 115 was to recognize net unrealized holding
losses of $32,599 as a decrease in partners' equity as of November 1, 1994. At
October 31, 1995, net unrealized holding losses were $5,079.

Restricted securities are required under the term loans described in Note
4.

F-81
<PAGE> 211

BAF ENERGY,
A CALIFORNIA LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Property, Plant and Equipment

Property, plant and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization of property, plant
and equipment are computed on a straight-line method principally over the
following estimated useful lives:

<TABLE>
<CAPTION>
YEARS
--------
<S> <C>
Buildings and improvements.......................................... 30
Machinery and equipment............................................. 5 to 30
</TABLE>

Major Maintenance Accruals

The Partnership accrues for the estimated future costs of major overhauls
and equipment replacement based upon engineering studies.

Income Taxes

Federal and state income tax regulations provide that no income taxes are
levied on a partnership. Instead, each partners' share of partnership profit or
loss is reported on his or her separate income tax return. Accordingly, no
partnership income taxes are provided for in the accompanying financial
statements.

(2) AVAILABLE-FOR-SALE SECURITIES

As of October 31, 1995, the amortized cost and estimated fair values of the
Partnership's investments in tax-exempt municipal securities are summarized as
follows:

<TABLE>
<CAPTION>
RESTRICTED
AVAILABLE- AVAILABLE-
FOR-SALE FOR-SALE
SECURITIES SECURITIES TOTAL
---------- ---------- ----------
<S> <C> <C> <C>
Amortized cost......................... $1,919,184 $7,246,384 $9,165,568
Gross unrealized losses................ -- (5,079) (5,079)
---------- ---------- ----------
Estimated fair value................... $1,919,184 $7,241,305 $9,160,489
========== ========== ==========
</TABLE>

The amortized cost and estimated fair value of tax-exempt municipal
securities by contractual maturity are shown below.

<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
DUE IN FISCAL YEAR ENDING OCTOBER 31, COST FAIR VALUE
---------------------------------------------------- ---------- ----------
<S> <C> <C>
1996................................................ $2,137,292 $2,134,000
1997-2000........................................... 7,028,276 7,026,489
---------- ----------
Total..................................... $9,165,568 $9,160,489
========== ==========
</TABLE>

Proceeds from sales of investments for the year ended October 31, 1995 are
as follow:

<TABLE>
<S> <C>
Gross proceeds.................................................. $26,099,037
Gross gains..................................................... $ 4,404
Gross losses.................................................... $ 3,939
</TABLE>

F-82
<PAGE> 212

BAF ENERGY,
A CALIFORNIA LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(3) PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment and accumulated depreciation and amortization
consist of:

<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Cost
Buildings and improvements............................ $ 1,410,873 $ 1,313,304
Machinery and equipment............................... 98,847,561 98,897,656
------------ ------------
100,258,434 100,210,960
Accumulated depreciation and amortization............... (24,387,912) (20,854,389)
------------ ------------
$ 75,870,522 $ 79,356,571
============ ============
</TABLE>

On December 6, 1995, the Partnership signed a letter agreement with a third
party to lease substantially all of the Partnership's property, plant and
equipment (see Note 8).

(4) LONG-TERM LIABILITIES

Long-term liabilities are summarized as follows:

<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Term loan at 10.88%, due in equal installments through
March 2004, non-recourse to the Partnership, secured by
the facility and associated contracts................... $60,514,066 $64,678,085
Term loan at 15.65%, due in equal installments through
March 2004, with recourse to BEI, secured by the
facility and associated contracts....................... 8,137,159 8,575,025
Major maintenance accruals................................ 3,597,865 3,188,389
----------- -----------
72,249,090 76,441,499
Less -- Current maturities................................ 5,444,386 5,283,785
----------- -----------
$66,804,704 $71,157,714
=========== ===========
</TABLE>

Annual Maturities,

Annual maturities of long-term liabilities at October 31, 1995 are
summarized as follows:

<TABLE>
<CAPTION>
YEAR ENDING OCTOBER 31, AMOUNT
---------------------------------------------------------------- -----------
<S> <C>
1996............................................................ $ 5,444,386
1997............................................................ 6,121,107
1998............................................................ 6,716,700
1999............................................................ 7,224,887
2000............................................................ 10,541,918
Thereafter...................................................... 36,200,092
-----------
$72,249,090
===========
</TABLE>

(5) RELATED PARTY TRANSACTIONS

The Partnership Agreement requires that the Partnership pay BEI a monthly
administrative fee. This fee amounted to $146,596, $139,613 and $132,966 for the
years ended October 31, 1995, 1994 and 1993, respectively.

F-83
<PAGE> 213

BAF ENERGY,
A CALIFORNIA LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The Partnership has entered into a ground lease with a remaining term of 23
years with BAI for the land on which the facility is located. The lease includes
options to extend the lease term up to an additional 30 years. Rent was
$146,572, $139,593 and $132,946 for the years ended October 31, 1995, 1994 and
1993, respectively. Rents will escalate at the rate of 5% each year. In fiscal
1996, this lease will be assigned to a third party lessee pursuant to a letter
agreement discussed at Note 8.

The Partnership negotiated a steam sales contract with a remaining term of
23 years with Basic Vegetable Products, LP (BVP, LP). The General Partner of
BVP, LP is BVP. Under the contract, the Partnership supplies steam to BVP, LP's
King City, California food processing plant. Revenues recorded under the
contract totaled $669,341, $840,959 and $1,068,141 in 1995, 1994 and 1993,
respectively. In fiscal 1996, this contract will also be assigned (see Note 8).

(6) COMMITMENTS AND CONTINGENCIES

Facilities

The Partnership executed an Operations and Maintenance (O & M) Agreement
with Bechtel North American Power Corporation (Bechtel) in which Bechtel is
required to operate and maintain the facility for a term of five years from May
1989. The Partnership reimburses Bechtel for all costs incurred in the
performance of the service. O & M expenses paid totaled $3,665,168, $3,884,943
and $4,556,321 in 1995, 1994 and 1993, respectively, including a payment of base
fees of $275,000, $387,456 and $500,000 per year, respectively, and a payment of
earned fees of $380,000, $306,803 and $902,430 per year, respectively. The
agreement also provided for a "high performance" bonus fee dependent on meeting
certain performance standards. In April 1994, the O & M Agreement was
renegotiated and extended through October 1998. The renegotiated terms include
payment of base fees of $275,000 and elimination of the high performance bonus
fee. The bonus paid in 1994 and 1995 totaled $3,107 and $175,327, respectively.
In connection with the anticipated transaction described at Note 8, the
Partnership will sever its O & M Agreement with Bechtel. The severance payment
will be made with funds directly contributed by the third party lessee.

Financing

Calcorp Group, Inc. (CGI), a limited partner, has a put option to sell its
23 percent investment in the Partnership back to the Partnership at fair market
value in certain circumstances. The put is subject to a subordination agreement
with the Partnership's lenders. CGI has entered into a technical support
agreement with the Partnership, wherein CGI is reimbursed for services rendered
based upon time and expenses incurred.

(7) REVENUE RECOGNITION

BEI has an exclusive Power Purchase Agreement with Pacific Gas and Electric
(PG&E) under which PG&E pays capacity payments, as defined in the agreement, and
purchases all available energy, except for amounts sold to BVP, LP (see Note 5).
The Partnership receives substantially all of its capacity payments from PG&E
during May through October, and receives payment for energy sales to PG&E during
May through January. In fiscal 1996, this agreement will be assigned to a third
party lessee pursuant to a letter agreement discussed at Note 8.

(8) SIGNIFICANT LEASE TRANSACTION

On December 6, 1995, BAF Energy signed a letter agreement with a third
party to enter into a 23-year lease of the cogeneration property, plant and
equipment and to assign all related contracts. Under the terms of the lease, the
lessee will assume all rights and responsibilities related to the ground lease
(see Note 5), the BVP, LP steam sales contract (see Note 5), and the PG&E Power
Purchase Agreement (see Note 7). BAF Energy expects to sign the lease in early
1996.

F-84
<PAGE> 214

BAF ENERGY,
A CALIFORNIA LIMITED PARTNERSHIP

CONDENSED BALANCE SHEETS

<TABLE>
<CAPTION>
OCTOBER 31,
1995
JANUARY 31, -------------
1996
-----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents..................................... $ 2,211,511 $ 3,757,921
Available for sale securities................................. -- 1,919,184
Restricted available-for-sale securities...................... 10,953,152 7,241,305
Accounts receivable -- trade.................................. 2,703,251 10,916,919
Supplies inventory............................................ 2,128,361 2,153,129
Prepaid insurance............................................. 144,633 288,383
------------ ------------
Total current assets.................................. 18,140,908 26,276,841
------------ ------------
Property, Plant and Equipment................................... 100,258,434 100,258,434
Accumulated depreciation and amortization..................... (25,280,413) (24,387,912)
------------ ------------
74,978,021 75,870,522
------------ ------------
$93,118,929 $ 102,147,363
============ ============
LIABILITIES AND PARTNERS' EQUITY
Current Liabilities:
Accounts payable.............................................. $ 811,919 $ 1,598,177
Interest payable.............................................. 3,273,915 1,309,566
Payable to affiliate.......................................... 38,428 166,569
Current portion of long-term liabilities...................... 5,546,361 5,444,386
------------ ------------
Total current liabilities............................. 9,670,623 8,518,698
------------ ------------
Long-Term Liabilities........................................... 66,702,729 66,804,704
------------ ------------
Commitments and Contingencies................................... -- --
Partners' Equity:
Contributed equity............................................ 9,901,600 9,901,600
Undistributed earnings........................................ 6,843,977 16,922,361
------------ ------------
Total partners' equity................................ 16,745,577 26,823,961
------------ ------------
$93,118,929 $ 102,147,363
============ ============
</TABLE>

The accompanying notes are an integral part of these statements.

F-85
<PAGE> 215

BAF ENERGY,
A CALIFORNIA LIMITED PARTNERSHIP

CONDENSED STATEMENTS OF INCOME
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
JANUARY 31,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
OPERATING REVENUES................................................ $ 4,957,368 $ 7,941,577
OPERATING EXPENSES:
Fuel............................................................ 1,479,116 3,408,912
Depreciation and amortization................................... 892,500 1,072,028
Labor, supplies and other....................................... 1,066,580 1,431,321
----------- -----------
Total operating expenses................................ 3,438,196 5,912,261
----------- -----------
Operating income...................................... 1,519,172 2,029,316
----------- -----------
OTHER INCOME AND EXPENSE:
Interest income and other....................................... 154,073 130,313
General and administrative...................................... (290,763) (201,340)
Interest expense................................................ (1,965,945) (2,094,761)
----------- -----------
Total other income and expense.......................... (2,102,635) (2,165,788)
----------- -----------
PARTNERSHIP LOSS.................................................. $ (583,463) $ (136,472)
=========== ===========
</TABLE>

The accompanying notes are an integral part of these statements.

F-86
<PAGE> 216

BAF ENERGY,
A CALIFORNIA LIMITED PARTNERSHIP

CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
JANUARY 31,
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Net Cash Provided by Operating Activities....................... $ 9,779,417 $ 2,298,789
------------ ------------
Cash Flows from Investing Activities:
Purchases of available-for-sale securities.................... (25,170,795) (12,290,102)
Proceeds from sales and redemptions of available-for-sale
securities................................................. 23,344,968 12,841,335
Additions to property, plant and equipment, net............... -- (20,189)
------------ ------------
Net cash (used in) provided by investing activities... (1,825,827) 531,044
------------ ------------
Cash Flows From Financing Activities:
Increase in long-term liabilities, net........................ -- 307,110
Cash distributions to partners................................ (9,500,000) (8,500,000)
------------ ------------
Net cash used in financing activities................. (9,500,000) (8,192,890)
------------ ------------
Net Decrease in Cash and Cash Equivalents....................... (1,546,410) (5,363,057)
Cash and Cash Equivalents, beginning of period.................. 3,757,921 5,363,057
------------ ------------
Cash and Cash Equivalents, end of period........................ $ 2,211,511 $ --
============ ============
Supplementary Information:
Unrealized holding gains/losses, net, on available-for-sale
securities, recorded as additions to undistributed
earnings................................................... $ 5,079 $ --
Cash paid during the period for interest...................... $ -- $ --
</TABLE>

The accompanying notes are an integral part of these statements.

F-87
<PAGE> 217

BAF ENERGY,
A CALIFORNIA LIMITED PARTNERSHIP

NOTES TO CONDENSED FINANCIAL STATEMENTS
JANUARY 31, 1996
(UNAUDITED)

(1) GENERAL

Organization

BAF Energy, A California Limited Partnership (BAF Energy or the
Partnership) was founded in 1986 and is engaged in the development, construction
and operation of a cogeneration facility. The term of the Partnership is through
December 2020 unless terminated earlier in accordance with the Partnership
Agreement. The facility produces and sells electricity and steam.

BAF Energy, Inc. (BEI) is the general partner of the Partnership and has an
ownership interest of 1 percent. BEI is a wholly owned subsidiary of Basic
Vegetable Products, Inc. (BVP). BVP is a wholly owned subsidiary of Basic
American, Inc. (BAI). As of January 31, 1996, BAI also owned approximately 51
percent of the limited partnership units of BAF Energy then outstanding.

Distributions and profit and loss are allocated 99 percent to the limited
partners, based on their proportionate share of limited partnership units, and 1
percent to the general partner.

Basis of Interim Presentation

The accompanying interim condensed financial statements of the Partnership
have been prepared by the Partnership, without audit by independent public
accountants, pursuant to the rules and regulations of the Securities and
Exchange Commission. In the opinion of management, the condensed consolidated
financial statements include all normal recurring adjustments necessary to
present fairly the information required to be set forth therein. Certain
information and note disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted from these statements pursuant to such rules and
regulations and, accordingly, should be read in conjunction with the audited
financial statements of the Partnership for the year ended October 31, 1995.
Consistent with the operating schedule of the cogeneration facility, the
Partnership receives a majority of its operating revenue between May and
September. Therefore, the results of operations for the three months ended
January 31, 1996 and 1995 are not indicative of the results for the entire year.

(2) RELATED PARTY TRANSACTIONS

The Partnership Agreement requires that the Partnership pay BEI a monthly
administrative fee. This fee amounted to $37,558 and $35,770 for the quarters
ended January 31, 1996 and 1995, respectively.

The Partnership has entered into a ground lease with BAI for the land on
which the facility is located. Rent was $37,554 and $35,764 for the quarters
ended January 31, 1996 and 1995, respectively.

The Partnership negotiated a steam sales contract with Basic Vegetable
Products, LP (BVP, LP). The General Partner of BVP, LP is BVP. Under the
contract, the Partnership supplies steam to BVP, LP's food processing plant.
Revenues recorded under the contract totaled $38,333 and $55,788 for the
quarters ended January 31, 1996 and 1995, respectively.

(3) PARTNERS' EQUITY:

The Partnership made distributions of $9,500,000 and $8,500,000 for the
quarters ended January 31, 1996 and 1995, respectively.

F-88
<PAGE> 218

BAF ENERGY,
A CALIFORNIA LIMITED PARTNERSHIP

NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
JANUARY 31, 1996
(UNAUDITED)

(4) SIGNIFICANT LEASE TRANSACTION:

In April 1996, the Partnership signed an agreement with a third party to
enter into a 23-year lease of the cogeneration property, plant and equipment and
to assign all related contracts. Under the terms of the lease, the lessee will
assume all rights and responsibilities related to the ground lease with BAI (see
Note 2), the BVP, LP steam sales contract (see Note 2) and a Pacific Gas &
Electric (PG&E) Power Purchase Agreement. The ground lease has a remaining term
of 23 years with BAI for the land on which the facility is located. This lease
includes options to extend the lease term up to an additional 30 years. The BVP,
LP steam sales contract has a remaining term of 23 years. The PG&E Power
Purchase Agreement states that PG&E pays capacity payments, as defined in the
agreement, and purchases all available energy, except for amounts sold to BVP,
LP.

F-89
<PAGE> 219

LOGO
<PAGE> 220

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 317 of the California General Corporation Law (the "California
Law") and Article IV of the Company's Amended and Restated Articles of
Incorporation (the "Articles") provide for the indemnification of directors,
officers, and "agents" (as defined in Section 317 of the California Law) under
certain circumstances. The Articles grant the Company the power to indemnify its
directors, officers, and agents under certain circumstances to the extent
permitted by California Law against certain expenses, judgments, fines,
settlements and other amounts actually and reasonably incurred in connection
with any proceeding arising by reason of his or her position as a director,
officer, employee or agent.

Section 317 of the California Law provides that a corporation has the power
to purchase and maintain insurance on behalf of any agent of the corporation
against any liabilities asserted against or incurred by the agent in such
capacity. The Company plans to procure a directors' and officers' liability
insurance policy insuring the Company's directors and officers against certain
liabilities and expenses incurred by them in their capacities as such, and
insuring the Company under certain circumstances, in the event that
indemnification payments are made by the Company to such directors and officers.

Section 204(a)(11) of the California Law provides for the indemnification,
subject to certain limitations, of directors, officers and agents for breach of
their duty to a corporation and its shareholders in excess of that expressly
permitted of Section 317 of the California Law.

The Company has entered into indemnification agreements with its directors
and officers. These agreements provide substantially broader indemnity rights
than those provided under the California Law and the Company's Bylaws. The
indemnification agreements are not intended to deny or otherwise limit third-
party or derivative suits against the Company or its directors or officers, but
if a director or officer were entitled to indemnity or contribution under the
indemnification agreement, the financial burden of a third-party suit would be
borne by the Company, and the Company would not benefit from derivative
recoveries against the director or officer. Such recoveries would accrue to the
benefit of the Company but would be offset by the Company's obligations to the
director or officer under the indemnification agreement.

The above discussion of the Company's Articles and indemnification
agreements and of Sections 204(a)(11) and 317 of the California Law is not
intended to be exhaustive and is respectively qualified in its entirety by such
Articles, indemnification agreements and statutes.

ITEM 6. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<S> <C>
3.1 Amended and Restated Articles of Incorporation, dated as of April 22, 1996, of
Calpine Corporation, a California corporation.(k)
4.1 Indenture dated as of February 17, 1994 between the Company and Shawmut Bank of
Connecticut, National Association, as Trustee, including form of Notes.(a)
4.2* Indenture dated as of May 16, 1996 between the Company and Fleet National Bank, as
Trustee, including form of Notes.
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
10.1 Financing Agreements
10.1.1 Term and Working Capital Loan Agreement, dated as of June 1, 1990, between Calpine
Geysers Company, L.P. (formerly Santa Rosa Geothermal Company, L.P.), and Deutsche
Bank AG, New York Branch.(a)
</TABLE>

II-1
<PAGE> 221

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<S> <C>
10.1.2 First Amendment to Term and Working Capital Loan Agreement, dated as of June 29,
1990, between Calpine Geysers Company, L.P. (formerly Santa Rosa Geothermal Company,
L.P.), and Deutsche Bank AG, New York Branch.(a)
10.1.3 Second Amendment to Term and Working Capital Loan Agreement, dated as of December 1,
1990, between Calpine Geysers Company, L.P. (formerly Santa Rosa Geothermal Company,
L.P.), and Deutsche Bank AG, New York Branch.(a)
10.1.4 Third Amendment to Term and Working Capital Loan Agreement, dated as of June 26,
1992, between Calpine Geysers Company, L.P. (formerly Santa Rosa Geothermal Company,
L.P.), Deutsche Bank AG, New York Branch, National Westminster Bank PLC, Union Bank
of Switzerland, New York Branch, and The Prudential Insurance Company of America.(a)
10.1.5 Fourth Amendment to Term and Working Capital Loan Agreement, dated as of April 1,
1993, between Calpine Geysers Company, L.P. (formerly Santa Rosa Geothermal Company,
L.P.), Deutsche Bank AG, New York Branch, National Westminster Bank PLC, Union Bank
of Switzerland, New York Branch, and The Prudential Insurance Company of America.(a)
10.1.6 Construction and Term Loan Agreement, dated as of January 30, 1992, between Sumas
Cogeneration Company, L.P., The Prudential Insurance Company of America, and Credit
Suisse, New York Branch.(a)
10.1.7 Amendment No. 1 to Construction and Term Loan Agreement, dated as of May 24, 1993,
between Sumas Cogeneration Company, L.P., The Prudential Insurance Company of
America, and Credit Suisse, New York Branch.(a)
10.1.8 Credit Agreement-Construction Loan and Term Loan Facility, dated as of January 10,
1990, between Credit Suisse and O.L.S. Energy-Agnews.(a)
10.1.9 Amendment No. 1 to Credit Agreement-Construction Loan and Term Loan Facility, dated
as of December 5, 1990, between Credit Suisse and O.L.S. Energy-Agnews.(a)
10.1.10 Participation Agreement, dated as of December 1, 1990, between O.L.S. Energy-Agnews,
Nynex Credit Company, Credit Suisse, Meridian Trust Company of California, and GATX
Capital Corporation.(a)
10.1.11 Facility Lease Agreement, dated as of December 1, 1990, between Meridian Trust
Company of California and O.L.S. Energy-Agnews.(a)
10.1.12 Project Revenues Agreement, dated as of December 1, 1990, between O.L.S.
Energy-Agnews, Meridian Trust Company of California and Credit Suisse.(a)
10.1.13 Credit Agreement, dated as of September 9, 1994, between Calpine Thermal Power,
Inc., Thermal Power Company and The Bank of Nova Scotia.(b)
10.1.14 Project Credit Agreement, dated as of June 30, 1995, between Calpine Greenleaf
Corporation, Greenleaf Unit One Associates, Greenleaf Unit Two Associates, Inc. and
The Sumitomo Bank, Limited.(g)
10.1.15 Lease dated as of April 24, 1996 between BAF Energy A California Limited
Partnership, Lessor, and Calpine King City Cogen, LLC, Lessee.(j)
10.2 Purchase Agreements
10.2.1 Purchase Agreement, dated as of April 1, 1993, between Sonoma Geothermal Partners,
L.P., Healdsburg Energy Company, L.P., and Freeport-McMoRan Resource Partners,
Limited Partnership.(a)
10.2.2 Stock Purchase Agreement, dated as of June 27, 1994, between Maxus International
Energy Company, Natomas Energy Company, Calpine Corporation and Calpine Thermal
Power, Inc. and amendment thereto dated July 28, 1994.(b)
</TABLE>

II-2
<PAGE> 222

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<S> <C>
10.2.3 Share Purchase Agreement dated March 30, 1995 between Calpine Corporation, Calpine
Greenleaf Corporation, Radnor Power Corp. and LFC Financial Corp.(e)
10.3 Power Sales Agreements
10.3.1 Long-Term Energy and Capacity Power Purchase Agreement relating to the Bear Canyon
Facility, dated November 30, 1984, between Pacific Gas & Electric and Calpine
Geysers Company, L.P. (formerly Santa Rosa Geothermal Company, L.P.), Amendment
dated October 17, 1985, Second Amendment dated October 19, 1988, and related
documents.(a)
10.3.2 Long-Term Energy and Capacity Power Purchase Agreement relating to the Bear Canyon
Facility, dated November 29, 1984, between Pacific Gas & Electric and Calpine
Geysers Company, L.P. (formerly Santa Rosa Geothermal Company, L.P.), and
Modification dated November 29, 1984, Amendment dated October 17, 1985, Second
Amendment dated October 19, 1988, and related documents.(a)
10.3.3 Long-Term Energy and Capacity Power Purchase Agreement relating to the West Ford
Flat Facility, dated November 13, 1984, between Pacific Gas & Electric and Calpine
Geysers Company, L.P. (formerly Santa Rosa Geothermal Company, L.P.), and amendments
dated May 18, 1987, June 22, 1987, July 3, 1987 and January 21, 1988, and related
documents.(a)
10.3.4 Agreement for Firm Power Purchase, dated as of February 24, 1989, between Puget
Sound Power & Light Company and Sumas Energy, Inc. and amendment thereto dated
September 30, 1991.(a)
10.3.5 Long-Term Energy and Capacity Power Purchase Agreement, dated April 16, 1985,
between O.L.S. Energy-Agnews and Pacific Gas & Electric Company and amendment
thereto dated February 24, 1989.(a)
10.3.6 Long-Term Energy and Capacity Power Purchase Agreement, dated November 15, 1984,
between Geothermal Energy Partners, Ltd., and Pacific Gas & Electric Company and
related documents.(a)
10.3.7 Long-Term Energy and Capacity Power Purchase Agreement, dated November 15, 1984,
between Geothermal Energy Partners, Ltd., and Pacific Gas & Electric Company (see
Exhibit 10.3.6 for related documents).(a)
10.3.8 Long-Term Energy and Capacity Power Purchase Agreement, dated December 12, 1984,
between Greenleaf Unit One Associates, Inc. and Pacific Gas and Electric Company.(f)
10.3.9 Long-Term Energy and Capacity Power Purchase Agreement, dated December 12, 1984,
between Greenleaf Unit Two Associates, Inc. and Pacific Gas and Electric Company.(f)
10.4 Steam Sales Agreements
10.4.1 Geothermal Steam Sales Agreement, dated July 19, 1979, between Calpine Geysers
Company, L.P. (formerly Santa Rosa Geothermal Company, L.P.), and Sacramento
Municipal Utility District and related documents.(a)
10.4.2 Agreement for the Sale and Purchase of Geothermal Steam, dated March 23, 1973,
between Calpine Geysers Company, L.P. (formerly Santa Rosa Geothermal Company,
L.P.), and Pacific Gas & Electric Company and related letter dated May 18, 1987.(a)
10.4.3 Thermal Energy and Kiln Lease Agreement, dated as of January 16, 1992, between Sumas
Cogeneration Company, L.P., and Socco, Inc. and amendment thereto dated May 24,
1993.(a)
10.4.4 Amended and Restated Energy Service Agreement, dated as of December 1, 1990, between
the State of California and O.L.S. Energy-Agnews.(a)
10.4.5 Agreement for the Sale of Geothermal Steam, dated as of July 28, 1992, between
Thermal Power Company and Pacific Gas & Electric Company.(c)
10.4.6 Amendment to the Agreement for the Sale of Geothermal Steam, dated as of August 9,
1995, between Union Oil Company of California, NEC Acquisition Company, Thermal
Power Company, and Pacific Gas and Electric Company.(h)
</TABLE>

II-3
<PAGE> 223

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<S> <C>
10.5 Service Agreements
10.5.1 Operation and Maintenance Agreement, dated as of April 5, 1990, between Calpine
Operating Plant Services, Inc. (formerly Calpine-Geysers Plant Services, Inc.), and
Calpine Geysers Company, L.P. (formerly Santa Rosa Geothermal Company, L.P.).(a)
10.5.2 Amended and Restated Operating and Maintenance Agreement, dated as of January 24,
1992, between Calpine Operating Plant Services, Inc. and Sumas Cogeneration Company,
L.P.(a)
10.5.3 Amended and Restated Operation and Maintenance Agreement, dated as of December 31,
1990, between O.L.S. Energy-Agnews and Calpine Operating Plant Services, Inc.
(formerly Calpine Cogen-Agnews, Inc.).(a)
10.5.4 Operating and Maintenance Agreement, dated as of January 1, 1995, between Calpine
Corporation and Geothermal Energy Partners, Ltd.(h)
10.6 Gas Supply Agreements
10.6.1 Gas Sale and Purchase Agreement, dated as of December 23, 1991, between ENCO Gas,
Ltd. and Sumas Cogeneration Company, L.P.(a)
10.6.2 Gas Management Agreement, dated as of December 23, 1991, between Canadian
Hydrocarbons Marketing Inc., ENCO Gas, Ltd. and Sumas Cogeneration Company, L.P.(a)
10.6.4 Natural Gas Sales Agreement, dated as of November 1, 1993, between O.L.S.
Energy-Agnews, Inc. and Amoco Energy Trading Corporation.(a)
10.6.5 Natural Gas Service Agreement, dated November 1, 1993, between Pacific Gas &
Electric Company and O.L.S. Energy-Agnews, Inc.(a)
10.7 Agreements Regarding Real Property
10.7.1 Office Lease, dated March 15, 1991, between 50 West San Fernando Associates, L.P.,
and Calpine Corporation.(a)
10.7.2 First Amendment to Office Lease, dated April 30, 1992, between 50 West San Fernando
Associates, L.P. and Calpine Corporation.(a)
10.7.3 Geothermal Resources Lease CA 1862, dated July 25, 1974, between the United States
Bureau of Land Management and Calpine Geysers Company, L.P. (formerly Santa Rosa
Geothermal Company, L.P.).(a)
10.7.4 Geothermal Resources Lease PRC 5206.2, dated December 14, 1976, between the State of
California and Calpine Geysers Company, L.P. (formerly Santa Rosa Geothermal
Company, L.P.).(a)
10.7.5 First Amendment to Geothermal Resources Lease PRC 5206.2, dated April 20, 1994,
between the State of California and Calpine Geysers Company, L.P. (formerly Santa
Rosa Geothermal Company, L.P.).(a)
10.7.6 Industrial Park Lease Agreement, dated December 18, 1990, between Port of Bellingham
and Sumas Energy, Inc.(a)
10.7.7 First Amendment to Industrial Park Lease Agreement, dated as of July 16, 1991,
between Port of Bellingham, Sumas Energy, Inc., and Sumas Cogeneration Company,
L.P.(a)
10.7.8 Second Amendment to Industrial Park Lease Agreement, dated as of December 17, 1991
between Port of Bellingham and Sumas Cogeneration Company, L.P.(a)
10.7.9 Amended and Restated Cogeneration Lease, dated as of December 1, 1990, between the
State of California and O.L.S. Energy-Agnews.(a)
10.8 General
10.8.1 Limited Partnership Agreement of Sumas Cogeneration Company, L.P., dated as of
August 28, 1991, between Sumas Energy, Inc. and Whatcom Cogeneration Partners,
L.P.(a)
</TABLE>

II-4
<PAGE> 224

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<S> <C>
10.8.2 First Amendment to Limited Partnership Agreement of Sumas Cogeneration Company,
L.P., dated as of January 30, 1992, between Whatcom Cogeneration Partners, L.P., and
Sumas Energy, Inc.(a)
10.8.3 Second Amendment to Limited Partnership Agreement of Sumas Cogeneration Company,
L.P., dated as of May 24, 1993, between Whatcom Cogeneration Partners, L.P., and
Sumas Energy, Inc.(a)
10.8.4 Second Amended and Restated Shareholders' Agreement, dated as of October 22, 1993,
among GATX Capital Corporation, Calpine Agnews, Inc., JGS-Agnews, Inc., and
GATX/Calpine-Agnews, Inc.(a)
10.8.5 Amended and Restated Reimbursement Agreement, dated October 22, 1993, between GATX
Capital Corporation, Calpine Agnews, Inc., JGS-Agnews, Inc., GATX/Calpine-Agnews,
Inc., and O.L.S. Energy-Agnews, Inc.(a)
10.8.6 Amended and Restated Limited Partnership Agreement of Geothermal Energy Partners
Ltd., L.P., dated as of May 19, 1989, between Western Geothermal Company, L.P.,
Sonoma Geothermal Company, L.P., and Cloverdale Geothermal Partners, L.P.(a)
10.8.7 Assignment and Security Agreement, dated as of January 10, 1990, between O.L.S.
Energy-Agnews and Credit Suisse.(a)
10.8.8 Pledge Agreement, dated as of January 10, 1990, between GATX/Calpine-Agnews, Inc.,
and Credit Suisse.(a)
10.8.9 Equity Support Agreement, dated as of January 10, 1990, between Calpine Corporation
and Credit Suisse.(a)
10.8.10 Assignment and Security Agreement, dated as of December 1, 1990, between O.L.S.
Energy-Agnews and Meridian Trust Company of California.(a)
10.8.11 Calpine Subordination Agreement, dated as of April 1, 1993, between Freeport-McMoRan
Resource Partners, L.P., Calpine Corporation, Sonoma Geothermal Partners, L.P.,
Calpine Sonoma, Inc., Healdsburg Energy Company, L.P., and Calpine Geysers Company,
L.P. (formerly Santa Rosa Energy Company, L.P.).(a)
10.8.12 First Amended and Restated Limited Partner Pledge and Security Agreement, dated as
of April 1, 1993, between Sonoma Geothermal Partners, L.P., Healdsburg Energy
Company, L.P., Calpine Geysers Company, L.P. (formerly Santa Rosa Geothermal
Company, L.P.), Freeport-McMoRan Resource Partners, L.P., and Meridian Trust Company
of California.(a)
10.8.13 Management Services Agreement, dated January 1, 1995, between Calpine Corporation
and Electrowatt Ltd.(k)
10.8.14 Revolving Credit Facility Letter Agreements, dated April 21, 1995, between Calpine
Corporation and Credit Suisse, and between Calpine Greenleaf Corporation and Credit
Suisse.(g)
10.8.15 Letter regarding Credit Facility, dated April 7, 1993, from Electrowatt Ltd. to
Credit Suisse.(a)
10.8.16 Promissory Grid Note, dated April 29, 1996, between Calpine Corporation and Credit
Suisse.(k)
10.8.17 Guarantee Fee Agreement, dated January 1, 1995, between Calpine Corporation and
Electrowatt Ltd.(g)
10.8.18 Amended and Restated Operating Agreement for the Geysers, dated as of December 1,
1993, by and between Magma-Thermal Power Project, a joint venture composed of NEC
Acquisition Company and Thermal Power Company, and Union Oil Company of
California.(c)
10.8.19* Registration Rights Agreement dated as of May 16, 1996 between the Company, Morgan
Stanley & Co. Incorporated, CS First Boston, Goldman Sachs & Co. and Scotia Capital
Markets (USA) Inc.
10.9 Calpine Corporation Stock Option Program and forms of agreements thereunder.(a)
10.10 Employment Agreement, effective as of January 1, 1995, between Calpine Corporation
and Mr. Peter Cartwright.(d)
</TABLE>

II-5
<PAGE> 225

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<S> <C>
10.11 Form of Indemnification Agreement for directors.(a)
10.12 Form of Indemnification Agreement for executive officers.(a)
21.1* Subsidiaries of the Company.
23.1* Consent of Brobeck, Phleger & Harrison LLP (contained in the opinion filed as
Exhibit 5).
23.2* Independent Public Accountants' Consent of Arthur Andersen LLP.
23.3* Independent Public Accountants' Consent of Moss Adams LLP.
23.4* Independent Accountants' Consent of Coopers & Lybrand L.L.P.
24* Power of Attorney (contained on the signature page of this Prospectus).
25* Form T-1 Statement of Eligibility of Fleet National Bank.
99.1* Form of Letter of Transmittal.
99.2* Form of Notice of Guaranteed Delivery.
</TABLE>

- ---------------
* Filed herewith.

(a) Incorporated by reference to Registrant's Registration Statement on Form
S-1 (Registration Statement No. 33-73160).

(b) Incorporated by reference to Registrant's Current Report on Form 8-K dated
September 9, 1994 and filed on September 26, 1994.

(c) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q
dated September 30, 1994 and filed on November 14, 1994.

(d) Incorporated by reference to Registrant's Annual Report on Form 10-K dated
December 31, 1994 and filed on March 29, 1995.

(e) Incorporated by reference to Registrant's Current Report on Form 8-K dated
April 21, 1995 and filed on May 5, 1995.

(f) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q
dated March 31, 1995 and filed on May 12, 1995.

(g) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q
dated June 30, 1995 and filed on August 14, 1995.

(h) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q
dated September 30, 1995 and filed on November 14, 1995.

(i) Incorporated by reference to Registrant's Annual Report on Form 10-K dated
December 31, 1995 and filed on March 29, 1996.

(j) Incorporated by reference to Registrant's Current Report on Form 8-K dated
May 1, 1996 and filed on May 14, 1996.

(k) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q
dated March 31, 1996 and filed on May 15, 1996.

FINANCIAL STATEMENT SCHEDULES

Schedule I -- Condensed Financial Information of Registrant

Schedule II -- Valuation and Qualifying Accounts and Reserves

ITEM 22. UNDERTAKINGS

(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or

II-6
<PAGE> 226

otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.

(b) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.

(c) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (b) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement, relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering therein.

(d) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment, all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.

(e) The undersigned registrant hereby undertakes to file an application for
the purpose of determining eligibility of the Trustee to act under subsection
(a) of Section 310 of the Trust Indenture Act in accordance with the rules and
regulations prescribed by the Commission under Section 305(b)(2) of the Act.

II-7
<PAGE> 227

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF SAN JOSE,
CALIFORNIA, ON THE 18TH DAY OF JUNE, 1996.

CALPINE CORPORATION

By: /s/ PETER CARTWRIGHT

--------------------------------------
Peter Cartwright
President and Chief Executive Officer

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED, AND EACH OF THE UNDERSIGNED OFFICERS
AND DIRECTORS HEREBY SEVERALLY CONSTITUTE AND APPOINT PETER CARTWRIGHT AND ANN
B. CURTIS, AND EACH OF THEM, TO SIGN FOR HIM OR HER AND IN HIS OR HER NAME IN
THE CAPACITY INDICATED BELOW, ALL AMENDMENTS TO THIS REGISTRATION STATEMENT
RELATING TO THE NEW NOTES FOR THE PURPOSE OF REGISTERING SUCH SECURITIES UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY RELATED REGISTRATION STATEMENT
OR AMENDMENT THERETO FILED PURSUANT TO RULE 462(B), HEREBY RATIFYING AND
CONFIRMING OUR SIGNATURES AS THEY MAY BE SIGNED BY OUR ATTORNEYS TO SUCH
REGISTRATION STATEMENTS AND ANY AND ALL AMENDMENTS THERETO.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------------- ------------------------------------- -------------
<S> <C> <C>
/s/ PETER CARTWRIGHT President and Chief Executive June 18, 1996
- ---------------------------------------- Officer, Director (principal
Peter Cartwright executive officer)
/s/ PIERRE Director and Chairman of the Board June 18, 1996
KRAFFT
- ----------------------------------------
Pierre Krafft
Director
- ----------------------------------------
Hans-Peter Aebi
/s/ RUDOLF BOESCH Director June 18, 1996
- ----------------------------------------
Rudolf Boesch
Director
- ----------------------------------------
Peter Bosshard
/s/ ANN B. Senior Vice President (principal June 18, 1996
CURTIS financial officer)
- ----------------------------------------
Ann B. Curtis
/s/ GLORIA S. Corporate Controller (principal June 18, 1996
GEE accounting officer)
- ----------------------------------------
Gloria S. Gee
</TABLE>

II-8
<PAGE> 228

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of Calpine Corporation and subsidiaries
included in this Registration Statement and have issued our report thereon dated
March 15, 1996. Our audit was made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedules listed in the index
of financial statement schedules are the responsibility of the Company's
management and are presented for purposes of complying with the Securities and
Exchange Commission's rules and are not part of the basic financial statements.
These schedules have been subjected to the auditing procedures applied in the
audit of the basic financial statements and, in our opinion, fairly state in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.

Arthur Andersen LLP

San Jose, California
March 15, 1996

S-1
<PAGE> 229

CALPINE CORPORATION

SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994

ASSETS

<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents..................................... $ (1,970,526) $ 5,514,002
Accounts receivable........................................... 6,304,594 2,196,912
Acquisition project receivables............................... 8,805,186 --
Intercompany receivables...................................... 38,360,583 57,696,201
Other current assets.......................................... 270,806 189,526
------------ ------------
Total current assets....................................... 51,770,643 65,596,641
Property, plant and equipment, net.............................. 724,359 554,582
Investments in power projects................................... 82,610,719 44,913,432
Notes receivable from related parties........................... 19,090,286 23,953,294
Notes receivable from Coperlasa................................. 6,394,462 --
Deferred charges................................................ 3,390,677 3,807,425
Other assets.................................................... 197,144 74,900
------------ ------------
Total assets............................................... $164,178,290 $138,900,274
============ ============
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable.............................................. $ 2,667,808 $ 777,637
Accrued payroll and related expenses.......................... 2,582,194 2,417,302
Accrued interest payable...................................... 4,051,785 4,046,875
Other accrued expenses........................................ 2,704,257 964,312
------------ ------------
Total current liabilities.................................. 12,006,044 8,206,126
Long-term line of credit........................................ 14,000,000 --
Senior Notes Due 2004........................................... 105,000,000 105,000,000
Deferred income taxes........................................... 7,877,537 6,976,950
Deferred revenue................................................ 67,925 67,925
------------ ------------
Total liabilities.......................................... 138,951,506 120,251,001
------------ ------------
Shareholder's equity:
Common stock, $.01 par value.................................. 20,000 20,000
Additional paid-in capital.................................... 6,204,000 6,204,000
Retained earnings............................................. 19,002,784 12,425,273
------------ ------------
Total shareholder's equity................................. 25,226,784 18,649,273
------------ ------------
Total liabilities and shareholder's equity................. $164,178,290 $138,900,274
============ ============
</TABLE>

The accompanying notes are an integral part of these condensed financial
statements.

S-2
<PAGE> 230

CALPINE CORPORATION

SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Revenue:
Service contract revenue from related parties... $28,733,399 $22,929,897 $ 2,373,319
Income from unconsolidated investments in power
projects..................................... 32,397,392 23,711,895 15,450,720
----------- ----------- -----------
Total revenue................................ 61,130,791 46,641,792 17,824,039
Cost of revenue:
Service contract expenses....................... 27,433,069 19,161,445 1,914,375
----------- ----------- -----------
Gross profit...................................... 33,697,722 27,480,347 15,909,664
Project development expenses...................... 3,087,316 2,822,459 1,280,125
General and administrative expenses............... 8,081,458 6,867,520 4,808,139
----------- ----------- -----------
Income from operations....................... 22,528,948 17,790,368 9,821,400
Other (income) expense:
Interest expense................................ 10,479,144 9,207,381 2,613,212
Other income, net............................... (377,276) (1,290,739) (1,153,797)
Income before provision for income taxes and
cumulative effect of change in accounting
principle.................................. 12,427,080 9,873,726 8,361,985
Provision for income taxes........................ 5,049,568 3,853,115 4,194,733
----------- ----------- -----------
Income before cumulative effect of change in
accounting principle....................... 7,377,512 6,020,611 4,167,252
Cumulative effect of adoption of SFAS No. 109..... -- -- (413,410)
----------- ----------- -----------
Net income................................... $ 7,577,512 $ 6,020,611 $ 3,753,842
========== ========== ==========
Weighted average number of shares outstanding..... 2,214,194 2,177,334 2,164,041
========== ========== ==========
Earnings per share:
Income before cumulative effect of change in
accounting principle......................... $ 3.33 $ 2.77 $ 1.93
Cumulative effect of adoption of SFAS No. 109... -- -- (0.19)
----------- ----------- -----------
Net income per share......................... $ 3.33 $ 2.77 $ 1.74
========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these condensed financial
statements.

S-3
<PAGE> 231

CALPINE CORPORATION

SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Net cash used in operating activities................ $ (8,874,945) $(44,753,732) $ (84,812)
------------ ------------ ------------
Cash flows from investing activities:
Acquisitions of property, plant and equipment...... (367,711) (299,961) (73,292)
Investments in power projects...................... (1,262,000) (175,352) (882,730)
Decrease (increase) in notes receivable............ (10,336,640) 3,294,727 (15,576,775)
Other, net......................................... (122,244) 97,838 (85,478)
------------ ------------ ------------
Net cash provided by (used in) investing
activities................................. (12,088,595) 2,917,252 (16,618,275)
------------ ------------ ------------
Cash flows from financing activities:
Payment of dividends............................... (800,000) (800,000) (800,000)
Borrowings under line of credit.................... 14,000,000 -- 23,000,000
Repayment of borrowings under line of credit....... -- (52,595,000) (5,872,500)
Proceeds from Senior Notes Due 2004................ -- 105,000,000 --
Costs associated with future financing............. 279,012 (3,419,003) (748,993)
Repayment of note payable to shareholder........... -- (1,200,000) --
------------ ------------ ------------
Net cash provided by financing activities..... 13,479,012 46,985,997 15,578,507
------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents........................................ (7,484,528) 5,149,517 (1,124,580)
Cash and cash equivalents, beginning of period....... 5,514,002 364,485 1,489,065
------------ ------------ ------------
Cash and cash equivalents, end of period............. $ (1,970,526) $ 5,514,002 $ 364,485
============ ============ ============
Supplementary information:
Cash paid during the period for:
Interest........................................ $ 9,945,443 $ 4,917,773 $ 2,120,637
Income taxes.................................... $ 4,293,725 $ 683,364 $ 12,800
</TABLE>

The accompanying notes are an integral part of these condensed financial
statements.

S-4
<PAGE> 232

CALPINE CORPORATION

SELECTED NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

1. ORGANIZATION AND OPERATION OF CALPINE

Calpine Corporation (Calpine) is a California corporation engaged in the
development, acquisition, ownership and operation of power generation facilities
in the United States. Calpine has ownership interests in and operates geothermal
power generation facilities and steam fields and natural gas-fired cogeneration
facilities through subsidiaries and investees. Founded in 1984 as a supplier of
engineering and management services, Calpine is wholly-owned by Electrowatt
Services, Inc., which is wholly-owned by Electrowatt Ltd (Electrowatt), a Swiss
company. Calpine brings expertise in the area of engineering, finance,
construction and plant operations and maintenance.

For the purposes of these registrant-only financial statements, Calpine's
wholly-owned subsidiaries are accounted for under the equity method and are
included in investments in power projects in the accompanying balance sheets.

In 1994, Calpine assumed the operations and maintenance agreements for the
projects in which Calpine has an interest. Prior to 1994, a wholly-owned
subsidiary, Calpine Operating Plant Services, Inc. (COPS) performed these
services. In 1993, COPS recorded service contract revenue from related parties
of $15.6 million and service contract expenses of $13.4 million pursuant to
these agreements.

2. LINES OF CREDIT AND REVOLVING CREDIT FACILITY

At December 31, 1995, the line of credit with Credit Suisse (whose parent
company owns approximately 44.2% of Electrowatt) provided for advances of $50.0
million. Interest may be paid at either LIBOR or the Credit Suisse base rate,
plus applicable margins in both cases. At December 31, 1995, Calpine had $19.9
million of borrowings outstanding, bearing interest at LIBOR plus 0.5% (6.4% at
December 31, 1995). At Calpine's discretion, the debt outstanding can be held
for various maturity periods of up to six months. Interest is paid on the last
day of each interest period for such loans, but not less often than quarterly,
based on the principal amount outstanding during the period. No stated
amortization exists for this indebtedness. From January 1 to March 13, 1996,
Calpine borrowed an additional $8.8 million and issued a letter of credit for
$3.0 million for working capital requirements, other development projects and to
fund Calpine Vapor, Inc. (Calpine Vapor), a subsidiary of Calpine. Calpine Vapor
made loans for construction of new geothermal wells in Mexico. No borrowings
were outstanding at December 31, 1994. The credit agreement specifies that
Calpine maintain certain covenants with which Calpine was in compliance.

At December 31, 1995, Calpine had three loan facilities with available
borrowings totaling $10.2 million. Borrowings and letters of credit outstanding
were $1.2 million and $3.8 million as of December 31, 1995, respectively, with
interest payable at variable interest rates based on bank base rates, LIBOR or
prime plus applicable margins in all cases (approximately 7.6% at December 31,
1995 on borrowings). At December 31, 1994, no borrowings and $900,000 of letters
of credit were outstanding on these facilities. The credit agreements specify
that Calpine maintain certain covenants with which Calpine was in compliance.

3. NOTE PAYABLE TO SHAREHOLDER

On December 31, 1991, Calpine declared a dividend of $1.2 million to its
parent company, Electrowatt Services, Inc. On the same date, Calpine issued a
note payable to Electrowatt Services, Inc. for $1.2 million. Interest was paid
quarterly at a rate of 4.25%, which approximated market. The note was paid on
June 30, 1994, the maturity date.

S-5
<PAGE> 233

CALPINE CORPORATION

SELECTED NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)

4. SENIOR NOTES DUE 2004

On February 17, 1994, Calpine completed a $105.0 million public debt
offering of 9 1/4% Senior Notes Due 2004 (Senior Notes). The net proceeds of
$100.9 million were used to repay all of the indebtedness outstanding under
Calpine's existing line of credit, and to repay subsidiaries' non-recourse notes
payable to Freeport-McMoRan Resource Partners, L.P. (FMRP) plus accrued
interest. The remaining proceeds were used for general corporate purposes
including a loan to the sole shareholder of Sumas Energy, Inc., the partner in
one of Calpine's power projects. The transaction costs of $4.1 million incurred
in connection with the public debt offering have been recorded as a deferred
charge and are amortized over the ten-year life of the Senior Notes using the
interest method.

Under provisions of the indenture applicable to the Senior Notes, Calpine
may, under certain circumstances be limited in its ability to make restricted
payments, as defined, which include dividends and certain purchases and
investments, incur additional indebtedness and engage in certain transactions.

5. COMMITMENTS AND CONTINGENCIES

Capital Projects

Calpine has 1996 commitments for capital expenditures totaling $6.8 million
related to various projects at its geothermal facilities. In March 1996, Calpine
entered into an energy agreement with Phillips Petroleum Company to develop,
construct, own and operate a 240 megawatt gas-fired cogeneration facility at
Phillips Houston Chemical Complex in Pasadena, Texas. The initial permitting
process is underway, with construction of the facility planned to begin in late
1996 and to be completed in 1998. Calpine is currently evaluating options to
finance the construction of this facility. Calpine issued a $3.0 million letter
of credit and has a 1996 capital commitment of $3.0 million in connection with
this facility. In a separate transaction, as of March 15, 1996, Calpine was
negotiating the potential acquisition of an operating lease for a 120 megawatt
gas-fired cogeneration facility located in Northern California.

Office and Equipment Leases

Calpine leases its corporate office, Santa Rosa office facilities and
certain office equipment under noncancellable operating leases expiring through
2000. Future minimum lease payments under these leases are (in thousands):

<TABLE>
<S> <C>
1996........................................................ $ 899
1997........................................................ 905
1998........................................................ 907
1999........................................................ 776
2000........................................................ 745
thereafter.................................................. 286
------
Total future minimum lease commitments...................... $4,518
======
</TABLE>

Lease payments are subject to adjustment for Calpine's pro rata portion of
annual increases or decreases in building operating costs. In 1995, 1994 and
1993, rent expense for noncancellable operating leases amounted to $733,000,
$663,000 and $636,000, respectively.

S-6
<PAGE> 234

CALPINE CORPORATION

SELECTED NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)

CPUC Restructuring

Electricity and steam sales agreements with PG&E are regulated by the
California Public Utilities Commission (CPUC). In December 1995, the CPUC
proposed the transition of the electric generation market to a competitive
market beginning January 1, 1998, with all consumers participating by 2003. The
proposed restructuring provides for phased-in customer choice, development of
non-discriminatory market structure, recovery of utilities' stranded costs,
sanctity of existing contracts, and continuation of existing public policy
programs including the promotion of fuel diversity through a renewable energy
purchase requirement.

As the proposed restructuring has widespread impact and the market
structure requires the participation and oversight of the Federal Energy
Regulatory Commission (FERC), the CPUC will seek to build a California consensus
involving the legislature, the Governor, public and municipal utilities, and
customers. The consensus would then be placed before the FERC so that both the
CPUC and FERC would implement the new market structure no later than January 1,
1998. There can be no assurance that the proposed restructuring will be enacted
in substantially the same form as discussed above. Calpine is unable to predict
the ultimate outcome of the restructuring.

Litigation

Calpine, together with over 100 other parties, was named as a defendant in
the second amended complaint in an action brought in August 1993 by the
bankruptcy trustee for Bonneville Pacific Corporation (Bonneville), captioned
Roger G. Segal, as the Chapter 11 Trustee for Bonneville Pacific Corporation v.
Portland General Corporation, et al., in the United States District Court for
the District of Utah. This complaint alleges that, in conjunction with top
executives of Bonneville and with the alleged assistance of the other 100
defendants, Calpine engaged in a broad conspiracy and fraud. The complaint has
been amended a number of times. Calpine has answered each version of the
complaint by denying all claims and is in the process of conducting discovery.
In August 1994 Calpine successfully moved for an order severing the trustee's
claim against Calpine from the claims against the other defendants. Although the
case involves over 25 separate financial transactions entered into by
Bonneville, the severed case concerns Calpine in respect of only one of these
transactions. In 1988, Calpine invested $2.0 million in a partnership formed
with Bonneville to develop four hydroelectric projects in the State of Hawaii.
The projects were not successfully developed by the partnership, and, subsequent
to Bonneville's Chapter 11 filing, Calpine filed a claim as a creditor against
Bonneville's bankruptcy estate. The trustee alleges that the equity investment
was actually a "sham" loan designed to inflate Bonneville's earnings. The
trustee further alleges that Calpine is one of many defendants in this case
responsible for Bonneville's insolvency and the amount of damages attributable
to Calpine based on the $2.0 million partnership investment is alleged to be
$577.2 million. The trustee is seeking to hold each of the other defendants
liable for a portion, all or, in certain cases, more than this amount. Calpine
expects the matter will be set for trial in 1996. Calpine believes the claims
against it are without merit and will continue to defend the action vigorously.
Calpine further believes that the resolution of this matter will not have a
material adverse effect on its financial position or results of operations.

Calpine is involved in various other claims and legal actions arising out
of the normal course of business. Management does not expect that the outcome of
these cases will have a material adverse effect on Calpine's financial position
or results of operations.

S-7
<PAGE> 235

CALPINE CORPORATION AND SUBSIDIARIES

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

(IN THOUSANDS)

FOR THE YEAR ENDED DECEMBER 31, 1995

<TABLE>
<CAPTION>
ADDITIONS
-------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- --------------------------------- ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Reserve for capitalized costs.... $ 1,838 $ -- $ -- $ -- $ 1,838(1)
========= ======== ======== ======== ========
Allowance for uncollectible
accounts....................... $ 238 $ -- $ -- $ -- $ 238
========= ======== ======== ======== ========
</TABLE>

FOR THE YEAR ENDED DECEMBER 31, 1994

<TABLE>
<CAPTION>
ADDITIONS
-------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- --------------------------------- ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Reserve for capitalized costs.... $ 800 $ 1,038 $ -- $ -- $ 1,838(1)
========= ======== ======== ======== ========
Allowance for uncollectible
accounts....................... -- 238 $ -- $ -- $ 238
========= ======== ======== ======== ========
</TABLE>

FOR THE YEAR ENDED DECEMBER 31, 1993

<TABLE>
<CAPTION>
ADDITIONS
-------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- --------------------------------- ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Reserve for capitalized costs.... $ 800 $ -- $ -- $ -- $ 800(1)
========= ======== ======== ======== ========
</TABLE>

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

(1) Provision for write-off of project development expenses.

S-8

<PAGE> 1
================================================================================

EXHIBIT 4.2

CALPINE CORPORATION

and

FLEET NATIONAL BANK, Trustee

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

Indenture

Dated as of May 16, 1996

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

$180,000,000

10 1/2% Senior Notes Due 2006
<PAGE> 2
<TABLE>
<S> <C>
ARTICLE I

DEFINITIONS AND INCORPORATION BY REFERENCE . . . . . . . . . . . . . . . . . . . 1
SECTION 1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.2 Other Definitions. . . . . . . . . . . . . . . . . . . . . 23
SECTION 1.3 Incorporation by Reference of Trust Indenture Act. . . . . 24
SECTION 1.4 Rules of Construction. . . . . . . . . . . . . . . . . . . 24

ARTICLE II

THE SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 2.1 Form and Dating. . . . . . . . . . . . . . . . . . . . . . 25
SECTION 2.2 Execution and Authentication. . . . . . . . . . . . . . . . 29
SECTION 2.3 Registrar and Paying Agent. . . . . . . . . . . . . . . . . 30
SECTION 2.4 Paying Agent To Hold Money in Trust. . . . . . . . . . . . 31
SECTION 2.5 Securityholder Lists. . . . . . . . . . . . . . . . . . . . 32
SECTION 2.6 Transfer and Exchange. . . . . . . . . . . . . . . . . . . 32
SECTION 2.7 Book-Entry Provisions for U.S. Global Note and Offshore
Global Note . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 2.8 Special Transfer Provisions . . . . . . . . . . . . . . . . 35
SECTION 2.9 Replacement Securities. . . . . . . . . . . . . . . . . . . 40
SECTION 2.10 Outstanding Securities. . . . . . . . . . . . . . . . . . 40
SECTION 2.11 Determination of Holders' Action. . . . . . . . . . . . . 41
SECTION 2.12 Temporary Securities. . . . . . . . . . . . . . . . . . . 41
SECTION 2.13 Cancellation. . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 2.14 Defaulted Interest. . . . . . . . . . . . . . . . . . . . 42

ARTICLE III

COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 3.1 Payment of Securities. . . . . . . . . . . . . . . . . . . 42
SECTION 3.2 Maintenance of Office or Agency. . . . . . . . . . . . . . 43
SECTION 3.3 Limitation on Restricted Payments. . . . . . . . . . . . . 43
SECTION 3.4 Limitation on Incurrence of Indebtedness. . . . . . . . . . 47
SECTION 3.5 Limitation on Payment Restrictions Affecting
Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 3.6 Limitation on Sale/Leaseback Transactions. . . . . . . . . 50
SECTION 3.7 Limitation on Liens. . . . . . . . . . . . . . . . . . . . 51
SECTION 3.8 Change of Control. . . . . . . . . . . . . . . . . . . . . 53
SECTION 3.9 Compliance Certificate. . . . . . . . . . . . . . . . . . . 55
SECTION 3.10 SEC Reports. . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 3.11 Transactions with Affiliates. . . . . . . . . . . . . . . 56
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>

SECTION 3.12 Sales of Assets. . . . . . . . . . . . . . . . . . . . . . 57
SECTION 3.13 Corporate Existence. . . . . . . . . . . . . . . . . . . . 62
SECTION 3.14 Payment of Taxes and Other Claims. . . . . . . . . . . . . 62
SECTION 3.15 Notice of Defaults and Other Events. . . . . . . . . . . . 63
SECTION 3.16 Maintenance of Properties and Insurance. . . . . . . . . . 63
SECTION 3.17 Limitation on Issuance of Capital Stock and Incurrence
of Indebtedness of Restricted Subsidiaries. . . . . . . . 63
SECTION 3.18 Limitation on Changes in the Nature of the Business. . . . 64
SECTION 3.19 Limitation on Subsidiary Investments . . . . . . . . . . . 65

ARTICLE IV

CONSOLIDATION, MERGER AND SALE . . . . . . . . . . . . . . . . . . . . . . . . . 65
SECTION 4.1 Merger and Consolidation of Company. . . . . . . . . . . . 65
SECTION 4.2 Successor Substituted. . . . . . . . . . . . . . . . . . . 67

ARTICLE V

DEFAULTS AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
SECTION 5.1 Events of Default. . . . . . . . . . . . . . . . . . . . . 68
SECTION 5.2 Acceleration. . . . . . . . . . . . . . . . . . . . . . . . 70
SECTION 5.3 Other Remedies. . . . . . . . . . . . . . . . . . . . . . . 71
SECTION 5.4 Waiver of Past Defaults. . . . . . . . . . . . . . . . . . 71
SECTION 5.5 Control by Majority. . . . . . . . . . . . . . . . . . . . 71
SECTION 5.6 Limitation on Suits. . . . . . . . . . . . . . . . . . . . 72
SECTION 5.7 Rights of Holders To Receive Payment. . . . . . . . . . . . 73
SECTION 5.8 Collection Suit by Trustee. . . . . . . . . . . . . . . . . 73
SECTION 5.9 Trustee May File Proofs of Claim. . . . . . . . . . . . . . 73
SECTION 5.10 Priorities. . . . . . . . . . . . . . . . . . . . . . . . 74
SECTION 5.11 Undertaking for Costs. . . . . . . . . . . . . . . . . . . 74
SECTION 5.12 Waiver of Stay or Extension Laws. . . . . . . . . . . . . 74

ARTICLE VI

TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
SECTION 6.1 Duties of Trustee. . . . . . . . . . . . . . . . . . . . . 75
SECTION 6.2 Rights of Trustee. . . . . . . . . . . . . . . . . . . . . 76
SECTION 6.3 Individual Rights of Trustee. . . . . . . . . . . . . . . . 77
SECTION 6.4 Trustee's Disclaimer. . . . . . . . . . . . . . . . . . . . 77
SECTION 6.5 Notice of Defaults. . . . . . . . . . . . . . . . . . . . . 77
SECTION 6.6 Reports by Trustee to Holders. . . . . . . . . . . . . . . 78
SECTION 6.7 Compensation and Indemnity. . . . . . . . . . . . . . . . . 78
SECTION 6.8 Replacement of Trustee. . . . . . . . . . . . . . . . . . . 79
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>

SECTION 6.9 Successor Trustee by Merger, etc. . . . . . . . . . . . . 80
SECTION 6.10 Eligibility; Disqualification. . . . . . . . . . . . . . . 80
SECTION 6.11 Preferential Collection of Claims Against Company. . . . . 80

ARTICLE VII

SATISFACTION AND DISCHARGE OF INDENTURE . . . . . . . . . . . . . . . . . . . . . 81
SECTION 7.1 Discharge of Liability on Securities; Defeasance. . . . . . 81
SECTION 7.2 Termination of Company's Obligations. . . . . . . . . . . . 81
SECTION 7.3 Defeasance and Discharge of Indenture. . . . . . . . . . . 82
SECTION 7.4 Defeasance of Certain Obligations. . . . . . . . . . . . . 85
SECTION 7.5 Application of Trust Money. . . . . . . . . . . . . . . . . 87
SECTION 7.6 Repayment to Company. . . . . . . . . . . . . . . . . . . . 87
SECTION 7.7 Reinstatement. . . . . . . . . . . . . . . . . . . . . . . 88

ARTICLE VIII

AMENDMENTS AND SUPPLEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
SECTION 8.1 Without Consent of Holders. . . . . . . . . . . . . . . . . 88
SECTION 8.2 With Consent of Holders. . . . . . . . . . . . . . . . . . 89
SECTION 8.3 Compliance with Trust Indenture Act. . . . . . . . . . . . 90
SECTION 8.4 Revocation and Effect of Consents. . . . . . . . . . . . . 90
SECTION 8.5 Notation on or Exchange of Securities. . . . . . . . . . . 91
SECTION 8.6 Trustee To Sign Amendments. . . . . . . . . . . . . . . . . 91
SECTION 8.7 Fixing of Record Dates. . . . . . . . . . . . . . . . . . . 91

ARTICLE IX

REDEMPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
SECTION 9.1 Notices to Trustee. . . . . . . . . . . . . . . . . . . . . 92
SECTION 9.2 Selection of Securities To Be Redeemed. . . . . . . . . . . 92
SECTION 9.3 Notice of Redemption. . . . . . . . . . . . . . . . . . . . 93
SECTION 9.4 Effect of Notice of Redemption. . . . . . . . . . . . . . . 94
SECTION 9.5 Deposit of Redemption Price. . . . . . . . . . . . . . . . 94
SECTION 9.6 Securities Redeemed in Part. . . . . . . . . . . . . . . . 94

ARTICLE X

MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
SECTION 10.1 Trust Indenture Act Controls. . . . . . . . . . . . . . . 94
SECTION 10.2 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . 95
SECTION 10.3 Communication by Holders with Other Holders . . . . . . . 96
SECTION 10.4 Certificate and Opinion as to Conditions Precedent. . . . 96
SECTION 10.5 Statements Required in Certificate or Opinion. . . . . . . 96

</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
SECTION 10.6 Rules by Trustee and Agents. . . . . . . . . . . . . . . . 97
SECTION 10.7 Legal Holidays. . . . . . . . . . . . . . . . . . . . . . 97
SECTION 10.8 Successors; No Recourse Against Others. . . . . . . . . . 97
SECTION 10.9 Duplicate Originals. . . . . . . . . . . . . . . . . . . . 97
SECTION 10.10 Other Provisions. . . . . . . . . . . . . . . . . . . . . 98
SECTION 10.11 Governing Law. . . . . . . . . . . . . . . . . . . . . . 98

SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99

EXHIBIT A -- Form of Initial Security . . . . . . . . . . . . . . . . . . . . A-1

EXHIBIT B -- Form of Exchange Security . . . . . . . . . . . . . . . . . . . . B-1

EXHIBIT C -- Form of Certificate to Be Delivered in Connection with
Removal of Legend Following Offshore Notes Exchange Date . . . . C-1

EXHIBIT D -- Form of Certificate to Be Delivered in Connection with
Transfers to Non-QIB Accredited Investors . . . . . . . . . . . . D-1

EXHIBIT E -- Form of Certificate to Be Delivered in Connection with
Transfers Pursuant to Regulation S . . . . . . . . . . . . . . . E-1
</TABLE>
<PAGE> 6
INDENTURE dated as of May 16, 1996, between Calpine
Corporation, a California corporation (the "Company"), and Fleet National Bank,
a national banking association (the "Trustee").

Each party agrees as follows for the benefit of the other
parties and for the equal and ratable benefit of the holders of the Company's 10
1/2% Senior Notes Due 2006:

ARTICLE I

DEFINITIONS AND INCORPORATION BY REFERENCE

SECTION 1.1 Definitions.

"Acquired Indebtedness" means Indebtedness of a Person existing at
the time at which such Person became a Subsidiary and not incurred in connection
with, or in contemplation of, such Person becoming a Subsidiary. Acquired
Indebtedness shall be deemed to be Incurred on the date the acquired Person
becomes a Subsidiary.

"Additional Assets" means (i) any property or assets related to the
Line of Business which will be owned and used by the Company or a Restricted
Subsidiary; (ii) the Capital Stock of a Person that becomes a Restricted
Subsidiary as a result of the acquisition of such Capital Stock by the Company
or another Restricted Subsidiary or (iii) Capital Stock constituting a minority
interest in any Person that at such time is a Restricted Subsidiary.

"Affiliate" of any specified Person means any other Person,
directly or indirectly, controlling or controlled by or under direct or indirect
common control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of Sections 3.11 and 3.12 only, "Affiliate" shall also mean any
beneficial owner of 5% or more of the total Voting Shares (on a Fully Diluted
Basis) of the Company or of rights or warrants to purchase such stock (whether
or not currently exercisable) and any Person who would be an Affiliate of any
such
<PAGE> 7
beneficial owner pursuant to the first sentence hereof. For purposes of Section
3.3, "Affiliate" shall also mean any Person of which the Company owns 5% or more
of any class of Capital Stock or rights to acquire 5% or more or any class of
Capital Stock and any Person who would be an Affiliate of any such Person
pursuant to the first sentence hereof.

"Agent" means any Registrar, Paying Agent, authenticating agent,
co-registrar or additional paying agent.

"Asset Sale" means any sale, transfer or other disposition
(including by way of merger, consolidation or sale leaseback transactions, but
excluding (except as provided for in the provisions described in the last
paragraph of Section 3.12(b)) those permitted by Article IV hereof and those
permitted by Section 3.6 hereof) in one or a series of transactions by the
Company or any Restricted Subsidiary to any Person other than the Company or any
Wholly Owned Subsidiary, of (i) all or any of the Capital Stock of the Company
or any Restricted Subsidiary, (ii) all or substantially all of the assets of any
operating unit, Facility, division or line of business of the Company or any
Restricted Subsidiary or (iii) any other property or assets or rights to acquire
property or assets of the Company or any Restricted Subsidiary outside of the
ordinary course of business of the Company or such Restricted Subsidiary.

"Attributable Debt" in respect of a Sale/Leaseback Transaction
means, as at the time of determination, the present value (discounted at the
interest rate borne by the Securities, compounded annually) of the total
obligations of the lessee for rental payments during the remaining term of the
lease included in such Sale/Leaseback Transaction (including any period for
which such lease has been extended).

"Average Life" means, as of the date of determination, with respect
to any Indebtedness or Preferred Stock, the quotient obtained by dividing (i)
the sum of the products of (A) the numbers of years from the date of
determination to the dates of each successive scheduled principal payment of
such Indebtedness or scheduled redemption or similar payment with respect to
such Indebtedness or Preferred Stock multiplied by (B) the amount of such
payment by (ii) the sum of all such payments.

"Bank Credit Agreement" means the Promissory Grid Note, dated as of
April 21, 1995, between the Company and Credit Suisse, New York Branch, as
amended, refinanced, renewed or extended from time to time.

2
<PAGE> 8
"Board of Directors" means the Board of Directors of the Company or
any authorized committee thereof.

"Business Day" means each day which is not a Legal Holiday.

"Capital Stock" means any and all shares, interests, participations
or other equivalents (however designated) of capital stock of a corporation or
any and all equivalent ownership interests in a Person (other than a
corporation).

"Capitalized Lease" means, as applied to any Person, any lease of
any property (whether real, personal or mixed) of which the discounted present
value of the rental obligations of such Person as lessee, in conformity with
GAAP, is required to be capitalized on the balance sheet of such Person; the
Stated Maturity thereof shall be the date of the last payment of rent or any
other amount due under such lease prior to the first date upon which such lease
may be terminated by the lessee without payment of a penalty; and "Capitalized
Lease Obligations" means the rental obligations, as aforesaid, under such lease.

"Change of Control" means the occurrence of any of the following
events: (i) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than Parent or an underwriter engaged in a firm
commitment underwriting on behalf of the Company, is or becomes the beneficial
owner (as such term is used in Rules 13d-3 and 13d-5 under the Exchange Act,
except that for purposes of this clause (i) a person shall be deemed to have
beneficial ownership of all shares that such person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time), directly or indirectly, of more than (x) at any time prior to the
occurrence of a Public Market, a greater percentage of the total Voting Shares
of the Company than is held by Parent and its Affiliates, and (y) at any time
after the occurrence of a Public Market, 40% of the total Voting Shares of the
Company, provided that such ownership is greater than the total Voting Shares
held by Parent and its Affiliates; (ii) during any period of two consecutive
years, individuals who at the beginning of such period constituted the Board of
Directors (together with any new directors whose election by the Board of
Directors or whose nomination for election by the stockholders was approved by a
vote of 66-2/3% of the directors of the Company then still in office who were
either directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors then in office; (iii) all or substantially
all of the Company's and its Restricted Subsidiaries' assets are sold, leased,
exchanged or otherwise transferred to any

3
<PAGE> 9
Person or group of Persons acting in concert; or (iv) the Company is liquidated
or dissolved or adopts a plan of liquidation.

"Change of Control Triggering Event" means (A) if a Rating Agency
maintains a rating of the Securities at the time a Change of Control occurs, the
occurrence of a Change of Control and the occurrence of a Rating Decline or (B)
if no Rating Agency maintains a rating of the Securities at the time a Change of
Control occurs, the occurrence of a Change of Control.

"Code" means the Internal Revenue Code of 1986, as amended.

"Company" means the party named as such in the Indenture until a
successor replaces it pursuant to the terms and conditions of the Indenture and
thereafter means the successor.

4
<PAGE> 10
Subsidiary shall continue to be liable as a result of any such Asset Sale or
repaid, redeemed, defeased, discharged or otherwise retired in connection with
or with the proceeds of the assets or Capital Stock which are the subject of
such Asset Sales for such period; and provided, further, that if the Company or
any Restricted Subsidiary shall have made any acquisition of assets or Capital
Stock (occurring by merger or otherwise) since the beginning of such period
(including any acquisition of assets or Capital Stock occurring in connection
with a transaction causing a calculation to be made hereunder) the EBITDA and
Consolidated Interest Expense for such period shall be calculated, after giving
pro forma effect thereto (and without regard to clause (iv) of the proviso to
the definition of "Consolidated Net Income"), as if such acquisition of assets
or Capital Stock took place on the first day of such period. For all purposes of
this definition, if the date of determination occurs prior to the completion of
the first four full fiscal quarters following the Issue Date, then "EBITDA" and
"Consolidated Interest Expense" shall be calculated after giving effect on a pro
forma basis to the Offering as if the Offering occurred on the first day of the
four full fiscal quarters that were completed preceding such date of
determination.

"Consolidated Current Liabilities," as of the date of
determination, means the aggregate amount of liabilities of the Company and its
Consolidated Restricted Subsidiaries which may properly be classified as current
liabilities (including taxes accrued as estimated), after eliminating (i) all
inter-company items between the Company and any Consolidated Subsidiary and (ii)
all current maturities of long-term Indebtedness, all as determined in
accordance with GAAP.

"Consolidated Income Tax Expense" means, for any period, as applied
to the Company, the provision for local, state, federal or foreign income taxes
on a Consolidated basis for such period determined in accordance with GAAP.

"Consolidated Interest Expense" means, for any period, as applied
to the Company, the sum of (a) the total interest expense of the Company and its
Consolidated Restricted Subsidiaries for such period as determined in accordance
with GAAP, including, without limitation, (i) amortization of debt issuance
costs or of original issue discount on any Indebtedness and the interest portion
of any deferred payment obligation, calculated in accordance with the effective
interest method of accounting, (ii) accrued interest, (iii) noncash interest
payments, (iv) commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing, (v) interest
actually paid by the Compa-

5
<PAGE> 11
ny or any such Subsidiary under any guarantee of Indebtedness or other
obligation of any other Person and (vi) net costs associated with Interest Rate
Agreements (including amortization of discounts) and Currency Agreements, plus
(b) all but the principal component of rentals in respect of Capitalized Lease
Obligations paid, accrued, or scheduled to be paid or accrued by the Company or
its Consolidated Restricted Subsidiaries, plus (c) one-third of all Operating
Lease Obligations paid, accrued and/or scheduled to be paid by the Company and
its Consolidated Restricted Subsidiaries, plus (d) capitalized interest, plus
(e) dividends paid in respect of Preferred Stock of the Company or any
Restricted Subsidiary held by Persons other than the Company or a Wholly Owned
Subsidiary, plus (f) cash contributions to any employee stock ownership plan to
the extent such contributions are used by such employee stock ownership plan to
pay interest or fees to any person (other than the Company or a Restricted
Subsidiary) in connection with loans incurred by such employee stock ownership
plan to purchase Capital Stock of the Company.

"Consolidated Net Income (Loss)" means, for any period,
as applied to the Company, the Consolidated net income (loss) of the Company and
its Consolidated Restricted Subsidiaries for such period, determined in
accordance with GAAP, adjusted by excluding (without duplication), to the extent
included in such net income (loss), the following: (i) all extraordinary gains
or losses; (ii) any net income of any Person if such Person is not a Domestic
Subsidiary, except that (A) the Company's equity in the net income of any such
Person for such period shall be included in Consolidated Net Income (Loss) up to
the aggregate amount of cash actually distributed by such Person during such
period to the Company or a Restricted Subsidiary as a dividend or other
distribution and (B) the equity of the Company or a Restricted Subsidiary in a
net loss of any such Person for such period shall be included in determining
Consolidated Net Income (Loss); (iii) the net income of any Restricted
Subsidiary to the extent that the declaration or payment of dividends or similar
distributions by such Restricted Subsidiary of such income is not at the time
thereof permitted, directly or indirectly, by operation of the terms of its
charter or by-laws or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to such Restricted
Subsidiary or its stockholders; (iv) any net income (or loss) of any Person
combined with the Company or any of its Restricted Subsidiaries on a "pooling of
interests" basis attributable to any period prior to the date of such
combination; (v) any gain (but not loss) realized upon the sale or other
disposition of any property, plant or equipment of the Company or its Restricted
Subsidiaries (including pursuant to any sale-and-leaseback arrangement) which is
not sold or otherwise disposed of in the ordinary course of business and

6
<PAGE> 12
any gain (but not loss) realized upon the sale or other disposition by the
Company or any Restricted Subsidiary of any Capital Stock of any Person,
provided that losses shall be included on an after-tax basis; and (vi)
the cumulative effect of a change in accounting principles; and further adjusted
by subtracting from such net income the tax liability of any parent of the
Company to the extent of payments made to such parent by the Company pursuant to
any tax sharing agreement or other arrangement for such period.

"Consolidated Net Tangible Assets" means, as of any
date of determination, as applied to the Company, the total amount of assets
(less accumulated depreciation or amortization, allowances for doubtful
receivables, other applicable reserves and other properly deductible items)
which would appear on a Consolidated balance sheet of the Company and its
Consolidated Restricted Subsidiaries, determined on a Consolidated basis in
accordance with GAAP, and after giving effect to purchase accounting and after
deducting therefrom, to the extent otherwise included, the amounts of: (i)
Consolidated Current Liabilities; (ii) minority interests in Consolidated
Subsidiaries held by Persons other than the Company or a Restricted Subsidiary;
(iii) excess of cost over fair value of assets of businesses acquired, as
determined in good faith by the Board of Directors; (iv) 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 GAAP; (v) 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; (vi) treasury
stock; and (vii) 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 such obligation is not reflected in Consolidated Current
Liabilities.

"Consolidated Net Worth" means, at any date of
determination, as applied to the Company, stockholders' equity as set forth on
the most recently available Consolidated balance sheet of the Company and its
Consolidated Restricted Subsidiaries (which shall be as of a date no more than
60 days prior to the date of such computation), less any amounts attributable to
Redeemable Stock or Exchangeable Stock, the cost of treasury stock and the
principal amount of any promissory notes receivable from the sale of Capital
Stock of the Company or any Subsidiary.

"Consolidation" means, with respect to any Person, the
consolidation of accounts of such Person and each of its subsidiaries if and to
the extent

7
<PAGE> 13
the accounts of such Person and such subsidiaries are consolidated in accordance
with GAAP. The term "Consolidated" shall have a correlative meaning.

"Controlled Non-Subsidiary Investment" means any Investment of
the type specified in clause (iv) of Section 3.3(a) which is made by the Company
or its Restricted Subsidiaries in an Affiliate other than a Subsidiary; provided
that (i) at the time such Investment is made, no Default or Event of Default
shall have occurred and be continuing (or would result therefrom); (ii) after
giving effect to the Investment and to the Incurrence of any Indebtedness in
connection therewith on a pro forma basis, the Consolidated Coverage Ratio is at
least 1.75:1; (iii) after giving effect to the Investment, the aggregate
Investment made by the Company and its Subsidiaries in Controlled Non-Subsidiary
Investments does not exceed $100,000,000; (iv) the Person in which the
Investment is made is engaged only in the business described in Section 3.18
including Unrelated Businesses to the extent permitted by Section 3.18; (v) the
Company, directly or through its Restricted Subsidiaries is entitled to (A) in
the case of an Investment in Capital Stock, receive dividends or other
distributions on its Investment at the same time as or prior to, and on a basis
pro rata with, any other holder or holders of Capital Stock of such Person and
(B) in the case of an Investment other than in Capital Stock, receive interest
thereon at a rate per annum not less than the rate on the Securities, and, on
the liquidation or dissolution of such Person, receive repayment of the
principal thereof prior to the payment of any dividends or distributions on
Capital Stock of such Person; (vi) the Company directly or through its
Restricted Subsidiaries, either (x) controls, under an operating and management
agreement or otherwise, the day to day management and operation of such Person
and any Facility of the Person in which the Investment is made or (y) has
significant influence over the management and operation of such Person and any
Facility of such Person in all material respects (significant influence to
include the right to control or veto any material act or decision) in connection
with such management or operation; and (vii) any encumbrances or restrictions on
the ability of the Person in which the Investment is made to make the payments,
distributions, losses, advances or transfers referred to in clauses (i) through
(iii) under Section 3.5, in the written opinion of the President or Chief
Financial Officer of the Company (x) is required in order to obtain necessary
financing, (y) is customary for such financings and (z) applies only to the
assets of or revenues of the Person in whom the Investment is made.

8
<PAGE> 14
values to or under which the Company or any Restricted Subsidiary is a party or
a beneficiary on the Issue Date or becomes a party or beneficiary thereafter.

"Default" means any event which is, or after notice or passage
of time or both would be, an Event of Default.

"defaulted interest" means any interest on any Security which
is payable, but is not punctually paid or duly provided for on any Interest
Payment Date.

"Depositary" means The Depositary Trust Company, its nominees,
and their respective successors until a successor Depositary shall have become
such pursuant to the applicable provisions of this Indenture and thereafter
"Depositary" shall mean or include each Person who is then a Depositary
hereunder.

"Domestic Subsidiary" means a Restricted Subsidiary that is not
a Foreign Subsidiary.

"EBITDA" means, for any period, as applied to the Company, the
sum of Consolidated Net Income (Loss) (but without giving effect to adjustments,
accruals, deductions or entries resulting from purchase accounting,
extraordinary losses or gains and any gains or losses from any Asset Sales),
plus the following to the extent included in calculating Consolidated Net Income
(Loss): (a) Consolidated Income Tax Expense, (b) Consolidated Interest Expense,
(c) depreciation expense, (d) amortization expense and (e) all other non-cash
items reducing Consolidated Net Income, less all non-cash items increasing
Consolidated Net Income, in each case for such period; provided that, if the
Company has any Subsidiary that is not a Wholly Owned Subsidiary, EBITDA shall
be reduced (to the extent not otherwise reduced by GAAP) by an amount equal to
(A) the consolidated net income (loss) of such Subsidiary (to the extent
included in Consolidated Net Income (Loss)) multiplied by (B) the quotient of
(1) the number of shares of outstanding common stock of such Subsidiary not
owned on the last day of such period by the Company or any Wholly Owned
Subsidiary of the Company divided by (2) the total number of shares of
outstanding common stock of such Subsidiary on the last day of such period.

"Exchangeable Stock" means any Capital Stock which by its terms
is exchangeable or convertible at the option of any Person other than the
Company into another security (other than Capital Stock of the Company which is
neither Exchangeable Stock nor Redeemable Stock).

9
<PAGE> 15
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.

"Exchange Securities" means the 10 1/2% Senior Notes Due 2006
to be issued by the Company, and containing terms identical to those of the
Initial Securities (except that such Exchange Securities (i) shall have been
issued in an exchange offer registered under the Securities Act and (ii) shall
have an interest rate of 10 1/2% per annum (11% per annum if such exchange offer
is not consummated before November 13, 1996), without provision for adjustment
as provided in paragraph 1 on the reverse of the Initial Securities), that are
issued and exchanged for the Notes pursuant to the Registration Rights Agreement
and this Indenture.

"Existing Agreements" means the Management Services Agreement,
dated January 1, 1992, between the Company and Parent, and the Guarantee Fee
Agreement, dated January 1, 1992 between the Company and Parent, in each case as
in effect on the date hereof.

"Facility" means a power generation facility or energy
producing facility, including any related fuel reserves.

"Foreign Asset Sale" means an Asset Sale in respect of the
Capital Stock or assets of a Foreign Subsidiary or a Restricted Subsidiary of
the type described in Section 936 of the Code to the extent that the proceeds of
such Asset Sale are received by a Person subject in respect of such proceeds to
the tax laws of a jurisdiction other than the United States of America or any
State thereof or the District of Columbia.

"Foreign Subsidiary" means a Restricted Subsidiary that is
incorporated in a jurisdiction other than the United States of America or a
State thereof or the District of Columbia.

"Fully Diluted Basis" means after giving effect to the exercise
of any outstanding options, warrants or rights to purchase Voting Shares and the
conversion or exchange of any securities convertible into or exchangeable for
Voting Shares.

10
<PAGE> 16
those set forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board.

"guarantee" means, as applied to any obligation, contingent or
otherwise, of any Person, (i) a guarantee, direct or indirect, in any manner, of
any part or all of such obligation (other than by endorsement of negotiable
instruments for collection in the ordinary course of business) and (ii) an
agreement, direct or indirect, contingent or otherwise, the practical effect of
which is to insure in any way the payment or performance (or payment of damages
in the event of nonperformance) of any part or all of such obligation, including
the payment of amounts drawn down under letters of credit.

"Holder" or "Securityholder" means the Person in whose name a
Security is registered on the Registrar's books.

"Incur" means, as applied to any obligation, to create, incur,
issue, assume, guarantee or in any other manner become liable with respect to,
contingently or otherwise, such obligation, and "Incurred," "Incurrence" and
"Incurring" shall each have a correlative meaning; provided, however, that any
Indebtedness or Capital Stock of a Person existing at the time such Person
becomes (after the Issue Date) a Subsidiary (whether by merger, consolidation,
acquisition or otherwise) shall be deemed to be Incurred by such Subsidiary at
the time it becomes a Subsidiary; and provided, further, that any amendment,
modification or waiver of any provision of any document pursuant to which
Indebtedness was previously Incurred shall not be deemed to be an Incurrence of
Indebtedness as long as (i) such amendment, modification or waiver does not (A)
increase the principal or premium thereof or interest rate thereon, (B) change
to an earlier date the Stated Maturity thereof or the date of any scheduled or
required principal payment thereon or the time or circumstances under which such
Indebtedness may or shall be redeemed, (C) if such Indebtedness is contractually
subordinated in right of payment to the Securities, modify or affect, in any
manner adverse to the Holders, such subordination, (D) if the Company is the
obligor thereon, provide that a Restricted Subsidiary shall be an obligor, (E)
if such Indebtedness is Non-Recourse Debt, cause such Indebtedness to no longer
constitute Non-Recourse Debt or (F) violate, or cause the Indebtedness to
violate, the provisions of Sections 3.5 or 3.7 and (ii) such Indebtedness would,
after giving effect to such amendment, modification or waiver as if it were an
Incurrence, comply with clause (i) of the first proviso to the definition of
"Refinancing Indebtedness."

11
<PAGE> 17
"Indebtedness" of any Person means, without duplication, (i)
the principal of and premium (if any such premium is then due and owing) in
respect of (A) indebtedness of such Person for money borrowed and (B)
indebtedness evidenced by notes, debentures, bonds or other similar instruments
for the payment of which such Person is responsible or liable; (ii) all
Capitalized Lease Obligations of such Person; (iii) all obligations of such
Person Incurred as the deferred purchase price of property, all conditional sale
obligations of such Person and all obligations of such Person under any title
retention agreement; (iv) all obligations of such 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 (i) through (iii) above)
entered into in the ordinary course of business of such Person to the extent
such letters of credit are not drawn upon or, if and to the extent drawn upon,
such drawing is reimbursed no later than the tenth Business Day following
receipt by such Person of a demand for reimbursement following payment on the
letter of credit); (v) Redeemable Stock of such Person and, in the case of any
Subsidiary, any other Preferred Stock, in either case valued at, in the case of
Redeemable Stock, the greater of its voluntary or involuntary maximum fixed
repurchase price exclusive of accrued and unpaid dividends or, in the case of
Preferred Stock that is not Redeemable Stock, its liquidation preference
exclusive of accrued and unpaid dividends; (vi) contractual obligations to
repurchase goods sold or distributed; (vii) all obligations of such Person in
respect of Interest Rate Agreements and Currency Agreements; (viii) all
obligations of the type referred to in clauses (i) through (vii) of other
Persons and all dividends of other Persons for the payment of which, in either
case, such Person is responsible or liable, directly or indirectly, as obligor,
guarantor or otherwise, including by means of any guarantee; and (ix) all
obligations of the type referred to in clauses (i) through (viii) of other
Persons secured by any Lien on any property or asset of such Person (whether or
not such obligation is assumed by such Person), the amount of such obligation
being deemed to be the lesser of the value of such property or assets or the
amount of the obligation so secured; provided, however, that Indebtedness shall
not include trade accounts payable arising in the ordinary course of business.
For purposes hereof, the "maximum fixed repurchase price" of any Redeemable
Stock which does not have a fixed repurchase price shall be calculated in
accordance with the terms of such Redeemable Stock as if such Redeemable Stock
were purchased on any date on which Indebtedness shall be required to be
determined pursuant to this Indenture, and if such price is based upon, or
measured by, the fair market value of such Redeemable Stock, such fair market
value to be determined in good faith by the Board of Directors. The amount of
Indebtedness of any Person at any date shall be, with respect to

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<PAGE> 18
unconditional obligations, the outstanding balance at such date of all such
obligations as described above and, with respect to any contingent obligations
(other than pursuant to clause (vi) above, which shall be included to the extent
reflected on the balance sheet of such Person in accordance with GAAP) at such
date, the maximum liability determined by such 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 such obligation.

"Indenture" means this Indenture as amended or supplemented
from time to time in accordance with the applicable provisions hereunder.

"Initial Securities" means the 10 1/2% Senior Notes Due 2006
issued by the Company under this Indenture on or about the date of this
Indenture.

"Institutional Accredited Investor" means an institution that
is an "accredited investor" as that term is defined in Rule 501(a)(1), (2), (3)
or (7) under the Securities Act.

"Interest Payment Date" means the stated maturity of an
installment of interest on the Securities.

"Interest Rate Agreement" means any interest rate protection
agreement, interest rate future agreement, interest rate option agreement,
interest rate swap agreement, interest rate cap agreement, interest rate collar
agreement, interest rate hedge agreement or other similar agreement or
arrangement designed to protect against fluctuations in interest rates to or
under which the Company or any of its Restricted Subsidiaries is a party or
beneficiary on the Issue Date or becomes a party or beneficiary thereunder.

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<PAGE> 19
market value of the net assets of any Restricted Subsidiary at the time that
such Restricted Subsidiary is designated an Unrestricted Subsidiary and shall
exclude the fair market value of the net assets of any Unrestricted Subsidiary
at the time that such Unrestricted Subsidiary is designated a Restricted
Subsidiary and (ii) any property transferred to or from an Unrestricted
Subsidiary shall be valued at its fair market value at the time of such
transfer, in each case as determined by the Board of Directors in good faith.
For purposes of determining the aggregate amount of Investments in Controlled
Non-Subsidiary Investments, the amount of such Investments shall be reduced by
an amount equal to the net payments of interest on Indebtedness, dividends,
repayments of interest on Indebtedness, dividends, repayments of loans or
advances, or other transfers of assets, in each case to the Company or any
Restricted Subsidiary from any Person in whom a Controlled Non-Subsidiary
Investment has been made, not to exceed in the case of any Controlled
Non-Subsidiary Investment the amount of Investments previously made by the
Company or any Restricted Subsidiary in such Person.

"Investment Grade" means, with respect to the Securities, a
rating of Baa3 or higher by Moody's together with a rating of BBB- or higher by
S&P, provided that neither of such entities shall have announced or informed the
Company that it is reviewing the rating of the Securities in light of
downgrading the rating thereof.

"Issue Date" means the date on which the Initial Securities are
originally issued under this Indenture.

"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).

"Line of Business" means the ownership, acquisition,
development, construction, improvement and operation of Facilities.

"Moody's" means Moody's Investors Service, Inc. and its
successors.

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<PAGE> 20
received when converted to cash or cash equivalents) net of the sum of, without
duplication, (i) all reasonable legal, title and recording tax expenses,
reasonable commissions, and other reasonable fees and expenses incurred directly
relating to such Asset Sale, (ii) all local, state, federal and foreign taxes
required to be paid or accrued as a liability by the Company or any of its
Restricted Subsidiaries as a consequence of such Asset Sale, (iii) payments made
to repay Indebtedness which is secured by any assets subject to such Asset Sale
in accordance with the terms of any Lien upon or other security agreement of any
kind with respect to such assets, or which must by its terms, or by applicable
law, be repaid out of the proceeds from such Asset Sale and (iv) all
distributions required by any contract entered into other than in contemplation
of such Asset Sale to be paid to any holder of a minority equity interest in
such Restricted Subsidiary as a result of such Asset Sale, so long as such
distributions do not exceed such minority holder's pro rata portion (based on
such minority holder's proportionate equity interest) of the cash or cash
equivalent payments described above, net of the amounts set forth in clauses
(i)-(iii) above.

"Net Cash Proceeds" means, with respect to any issuance or sale
of Capital Stock by any Person, the cash proceeds to such Person of such
issuance or sale net of attorneys' fees, accountants' fees, underwriters' or
placement agents' fees, discounts or commissions and brokerage, consultancy and
other fees actually incurred by such Person in connection with such issuance or
sale and net of taxes paid or payable by such Person as a result thereof.

"Non-Convertible Capital Stock" means, with respect to any
corporation, any Capital Stock of such corporation which is not convertible into
another security other than non-convertible common stock of such corporation;
provided, however, that NonConvertible Capital Stock shall not include any
Redeemable Stock or Exchangeable Stock.

"Non-U.S. Person" means a person who is not a U.S. Person as
that term is defined in Regulation S.

"Non-Recourse Debt" means Indebtedness of the Company or any
Restricted Subsidiary that is Incurred to acquire, construct or develop a
Facility provided that such Indebtedness is without recourse to the Company or
any Restricted Subsidiary or to any assets of the Company or any such Restricted
Subsidiary other than such Facility and the income from and proceeds of such
Facility.

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<PAGE> 21
"Offering" means the offering and sale of the Initial
Securities pursuant to the Placement Agreement dated May 13, 1996 among the
Company, Morgan Stanley & Co. Incorporated, CS First Boston Corporation,
Goldman, Sachs & Co. and Scotia Capital Markets (USA) Inc.

"Officer" means the Chairman, the President, any Vice
President, the Chief Operating Officer, the Chief Financial Officer, the
Treasurer, the Secretary, any Assistant Treasurer, any Assistant Secretary or
the Controller of the Company.

"Officers' Certificate" means a certificate signed by two
Officers, one of whom must be the President, the Treasurer or a Vice President
of the Company. Each Officers' Certificate (other than certificates provided
pursuant to TIA Section 314(a)(4)) shall include the statements provided for in
TIA Section 314(e).

"Operating Lease Obligations" means any obligation of the
Company and its Restricted Subsidiaries on a Consolidated basis incurred or
assumed under or in connection with any lease of real or personal property
which, in accordance with GAAP, is not required to be classified and accounted
for as a capital lease.

"Opinion of Counsel" means a written opinion from legal
counsel who is acceptable to the Trustee. The counsel, if so acceptable, may be
an employee of or counsel to the Company or the Trustee. Each such Opinion of
Counsel shall include the statements provided for in TIA Section 314(e).

"Parent" means Electrowatt Ltd, a Swiss corporation, and any
subsidiary thereof holding Voting Shares of the Company.

"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.

"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 such
corporation, over shares of Capital Stock of any other class of such
corporation.

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<PAGE> 22
"Principal" of a Security means the principal of the Security
plus, if applicable, the premium on the Security.

"Private Placement Legend" means the legend set forth on the
Initial Securities in the form set forth in Section 2.1(c).

"Public Equity Offering" means an underwritten primary public
offering of equity securities of the Company pursuant to an effective
registration statement under the Securities Act.

"Public Market" shall be deemed to have occurred if (x) a
Public Equity Offering has been consummated and (y) at least 25% (for purposes
of the definition of "Change of Control") or 15% (for purposes of paragraph 5 of
the Securities attached hereto) of the total issued and outstanding common stock
of the Company has been distributed by means of an effective registration
statement under the Securities Act or sales pursuant to Rule 144 under the
Securities Act.

"PUHCA" means the Public Utility Holding Company Act of 1935,
as amended.

"PURPA" means the Public Utility Regulatory Policies Act of
1978, as amended.

"QIB" means a "qualified institutional buyer" as that term is
defined in Rule 144A.

"Rating Agencies" is defined to mean S&P and Moody's.

"Rating Category" is defined to mean (i) with respect to S&P,
any of the following categories: AAA, AA, A, BBB, BB, B, CCC, CC, C and D (or
equivalent successor categories) and (ii) with respect to Moody's, any of the
following categories: Aaa, Aa, A, Baa, Ba, B, Caa, Ca, C and D (or equivalent
successor categories). In determining whether the rating of the Securities has
decreased by one or more gradations, gradations within Rating Categories (+ and
- - for S&P; 1, 2 and 3 for Moody's) shall be taken into account (e.g., with
respect to S&P, a decline in a rating from BB+ to BB, as well as from BB- to B+,
will constitute a decrease of one gradation).

"Rating Decline" is defined to mean the occurrence of (i) or
(ii) below on, or within 90 days after, the earliest of (A) the Company having

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<PAGE> 23
become aware that a Change of Control has occurred, (B) the date of public
notice of the occurrence of a Change of Control or (C) the date of public notice
of the intention by Parent or the Company to approve, recommend or enter into,
any transaction which, if consummated, would result in a Change of Control
(which period shall be extended so long as the rating of the Securities is under
publicly announced consideration or possible downgrade by either of the Rating
Agencies), (i) a decrease of the rating of the Securities by either Rating
Agency by one or more rating gradations or (ii) the Company shall fail to
promptly advise the Rating Agencies, in writing, of such occurrence or any
subsequent material developments or shall fail to use its best efforts to
obtain, from at least one Rating Agency, a written, publicly announced
affirmation of its rating of the Securities, stating that it is not downgrading,
and is not considering downgrading, the Securities.

"Redeemable Stock" means any class or series of Capital
Stock of any Person that (a) by its terms, by the terms of any security into
which it is convertible or exchangeable or otherwise is, or upon the happening
of an event or passage of time would be, required to be redeemed (in whole or in
part) on or prior to the first anniversary of the Stated Maturity of the
Securities, (b) is redeemable at the option of the holder thereof at any time on
or prior to the first anniversary of the Stated Maturity of the Securities
(other than on a Change of Control or Asset Sale, provided that such
Change of Control or Asset Sale shall not yet have occurred) or (c) is
convertible into or exchangeable for Capital Stock referred to in clause (a) or
clause (b) above or debt securities at any time prior to the first anniversary
of the Stated Maturity of the Securities.

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<PAGE> 24
Indebtedness is scheduled to mature either (a) no earlier than the Indebtedness
being refinanced or (b) after the Stated Maturity of the Securities, (iv) the
Refinancing Indebtedness has an Average Life at the time such Refinancing
Indebtedness is Incurred that is equal to or greater than the Average Life of
the Indebtedness being refinanced and (v) such Refinancing Indebtedness is in an
aggregate principal amount (or if issued with original issue discount, an
aggregate issue price) that is equal to or less than the aggregate principal
amount (or if issued with original issue discount, the aggregate accreted value)
then outstanding (plus fees and expenses, including any premium, swap breakage
and defeasance costs) under the Indebtedness being refinanced; and
provided, further, that Refinancing Indebtedness shall not
include (x) Indebtedness of a Subsidiary of the Company that refinances
Indebtedness of the Company or (y) Indebtedness of the Company or a Restricted
Subsidiary that refinances Indebtedness of an Unrestricted Subsidiary.

"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of May 13, 1996, by and among the Company, Morgan Stanley &
Co. Incorporated, CS First Boston Corporation, Goldman, Sachs & Co. and Scotia
Capital Markets (USA) Inc.

"Registration Statement" means the Registration Statement as
defined and described in the Registration Rights Agreement.

"Regulation S" means Regulation S under the Securities Act.

"Related Assets" means electric power plants that, on the Issue
Date, produce electricity solely by utilizing steam from steam fields owned and
operated by a Restricted Subsidiary that is a Wholly Owned Subsidiary on the
Issue Date.

"Related Asset Indebtedness" means Non-Recourse Debt of a
Restricted Subsidiary that is a Wholly Owned Subsidiary on the Issue Date, the
proceeds of which are used by such Restricted Subsidiary to finance the
acquisition of Related Assets by such Restricted Subsidiary; provided, however,
that (i) such Related Asset Indebtedness is Incurred contemporaneously with a
Refinancing of all of the Non-Recourse Debt of such Restricted Subsidiary then
outstanding and (ii) the principal amount of such Related Asset Indebtedness
shall not exceed the purchase price of the Related Assets plus reasonable
out-of-pocket transaction costs and expenses of the Company and its Restricted
Subsidiaries required to acquire, or finance the acquisition of, such Related
Assets.

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<PAGE> 25
"Restricted Subsidiary" means any Subsidiary of the Company
that is not designated an Unrestricted Subsidiary by the Board of Directors.

"Rule 144A" means Rule 144A under the Securities Act.

"S&P" means Standard and Poor's Corporation and its successors.

"Sale/Leaseback Transaction" means an arrangement relating to
property now owned or hereafter acquired whereby the Company or a Subsidiary
transfers such property to a Person and leases it back from such Person, other
than leases for a term of not more than 36 months or between the Company and a
Wholly Owned Subsidiary or between Wholly Owned Subsidiaries.

"SEC" means the Securities and Exchange Commission.

"Securities" means the Initial Securities and the Exchange
Securities that are issued under and pursuant to the terms of this Indenture, as
amended or supplemented from time to time. For purposes of this Indenture, all
Initial Securities and Exchange Securities shall be treated as a single class
and shall vote together as one series of Securities under this Indenture.

"Securities Act" means the Securities Act of 1933, as amended
from time to time.

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<PAGE> 26
clauses (ii) and (iii) and with respect to the payment of dividends of other
Persons; and (v) all obligations of the Company consisting of modifications,
renewals, extensions, replacements and refundings of any obligations described
in clauses (i), (ii), (iii) or (iv); unless, in the instrument creating or
evidencing the same or pursuant to which the same is outstanding, it is provided
that such obligations are subordinated in right of payment to the Securities, or
any other Indebtedness or obligation of the Company; provided,
however, that Senior Indebtedness shall not be deemed to include (1) any
obligation of the Company to any Subsidiary, (2) any liability for Federal,
state, local or other taxes or (3) any accounts payable or other liability to
trade creditors arising in the ordinary course of business (including guarantees
thereof or instruments evidencing such liabilities).

"Significant Subsidiary" means any Subsidiary (other
than an Unrestricted Subsidiary) that would be a "Significant Subsidiary" of the
Company within the meaning of Rule 1-02 under Regulations S-X promulgated by the
SEC.

"Stated Maturity" means, with respect to any security,
the date specified in such security as the fixed date on which the principal of
such security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency).

"STC" means Shawmut Trust Company, a New York chartered
trust company with its principal place of business at 14 Wall Street, 8th Floor,
Window No. 2, New York, New York 10005.

"Subordinated Indebtedness" means any Indebtedness of
the Company (whether outstanding on the Issue Date or thereafter Incurred) which
is contractually subordinated or junior in right of payment to the Securities or
any other Indebtedness of the Company.

"Subsidiary" means, as applied to any Person, any
corporation, limited or general partnership, trust, association or other
business entity of which an aggregate of at least a majority of the outstanding
Voting Shares or an equivalent controlling interest therein, of such Person is,
at the time, directly or indirectly, owned by such Person and/or one or more
Subsidiaries of such Person.

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<PAGE> 27
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code
Section Section 77aaa-77bbbb) as in effect on the date first above written.

"Trustee" means the party named as such above until a successor
replaces it and thereafter means the successor.

"Trust Officer" means any officer of the Trustee assigned by
the Trustee to administer its corporate trust matters or to whom any corporate
trust matter is referred because of that officer's knowledge of and familiarity
with the particular subject.

"Uniform Commercial Code" means the New York Uniform Commercial
Code as in effect from time to time.

"Unrelated Business" means any business other than the Line of
Business.

"Unrestricted Subsidiary" means (i) any Subsidiary that at the
time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary
(including any newly acquired or newly formed Subsidiary) to be an Unrestricted
Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or holds
any Lien on any property of, the Company or any other Subsidiary that is not a
Subsidiary of the Subsidiary to be so designated; provided, that either (A) the
Subsidiary to be so designated has total assets of $1,000 or less or (B) if such
Subsidiary has assets greater than $1,000, that such designation would be
permitted pursuant to Section 3.3. The Board of Directors may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary of the Company; provided,
however, that immediately after giving effect to such designation (x) the
Company could Incur $1.00 of additional Indebtedness pursuant to Section 3.4(a)
and (y) no Default or Event of Default shall have occurred and be continuing.
Any such designation by the Board of Directors shall be evidenced to the Trustee
by promptly filing with the Trustee a copy of the board resolution giving effect
to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing provisions; provided, however, that the
failure to so file such resolution and/or Officers' Certificate with the Trustee
shall not impair or affect the validity of such designation.

22
<PAGE> 28
"U.S. Government Obligations" means securities that are (i)
direct obligations of the United States of America for the payment of which its
full faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case under
clauses (i) or (ii) are not callable or redeemable before the maturity thereof.

"Voting Shares," with respect to any corporation, means the
Capital Stock having the general voting power under ordinary circumstances to
elect at least a majority of the board of directors (irrespective of whether or
not at the time stock of any other class or classes shall have or might have
voting power by reason of the happening of any contingency).

"Wholly Owned Subsidiary" means a Subsidiary (other than an
Unrestricted Subsidiary) all the Capital Stock of which (other than directors'
qualifying shares) is owned by the Company or another Wholly Owned Subsidiary.

"Working Capital Credit Agreement" means the Line of Credit
Note, dated as of June 4, 1993, between the Company and The Bank of California,
N.A., as amended, refinanced, renewed or extended from time to time.

SECTION 1.2 Other Definitions.

TERM DEFINED IN SECTION
- ---- ------------------

"Application Period" . . . . . . . . . . . . . . . . . . . . . . . 3.12
"Asset Sale Offer" . . . . . . . . . . . . . . . . . . . . . . . . 3.12
"Asset Sale Offer Amount" . . . . . . . . . . . . . . . . . . . . . 3.12
"Asset Sale Purchase Date" . . . . . . . . . . . . . . . . . . . . 3.12
"Bankruptcy Law" . . . . . . . . . . . . . . . . . . . . . . . . . 5.1
"Change of Control Offer" . . . . . . . . . . . . . . . . . . . . . 3.8
"Change of Control Purchase Date" . . . . . . . . . . . . . . . . . 3.8
"Custodian" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1
"Event of Default" . . . . . . . . . . . . . . . . . . . . . . . . 5.1
"Global Notes" . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1(b)
"Legal Holiday" . . . . . . . . . . . . . . . . . . . . . . . . . . 10.7
"Notice of Default" . . . . . . . . . . . . . . . . . . . . . . . . 5.1
"Offer Period" . . . . . . . . . . . . . . . . . . . . . . . . . . 3.12

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<PAGE> 29
"Offshore Global Note" . . . . . . . . . . . . . . . . . . . . . . 2.1(b)
"Offshore Notes Exchange Date" . . . . . . . . . . . . . . . . . . 2.1(b)
"Offshore Physical Notes" . . . . . . . . . . . . . . . . . . . . . 2.1(b)
"Paying Agent" . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3
"Permanent Offshore Globe Note" . . . . . . . . . . . . . . . . . . 2.1(b)
"Physical Notes" . . . . . . . . . . . . . . . . . . . . . . . . . 2.1(b)
"Registrar" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3
"Restricted Payment" . . . . . . . . . . . . . . . . . . . . . . . 3.3(a)
"Successor Corporation" . . . . . . . . . . . . . . . . . . . . . . 4.1(i)
"Temporary Offshore Global Note" . . . . . . . . . . . . . . . . . 2.1(b)
"U.S. Global Note" . . . . . . . . . . . . . . . . . . . . . . . . 2.1(b)
"U.S. Physical Notes" . . . . . . . . . . . . . . . . . . . . . . . 2.1(b)

SECTION 1.3 Incorporation by Reference of
Trust Indenture Act.

Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.

The following TIA terms used in this Indenture have the following
meanings:

"Commission" means the SEC;

"indenture securities" means the Securities;

"indenture security holder" means a Holder or Securityholder;

"indenture to be qualified" means this Indenture;

"indenture trustee" or "institutional trustee" means the Trustee;
and

"obligor" on the indenture securities means the Company.

All other terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule under
the TIA have the meanings assigned to them.

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<PAGE> 30
SECTION 1.4 Rules of Construction.

Unless the context otherwise requires:

(a) a term has the meaning assigned to it;

(b) generally accepted accounting principles" means, and any
accounting term not otherwise defined has the meaning assigned to it
and shall be construed in accordance with, GAAP;

(d) words in the singular include the plural, and in the
plural include the singular;

(e) provisions apply to successive events and transactions;

(f) "including" means including, without limitation;

(g) unsecured debt shall not be deemed to be subordinate or
junior to secured debt merely by virtue of its nature as unsecured
debt;

(h) the principal amount of any non-interest bearing or other
discount security at any date shall be the principal amount thereof
that would be shown on a balance sheet of the issuer dated such date
prepared in accordance with generally accepted accounting principles
and accretion of principal on such security shall be deemed to be the
Incurrence of Indebtedness; and

(i) the principal amount (if any) of any Preferred Stock shall
be the greatest of (i) the stated value, (ii) the redemption price or
(iii) the liquidation preference of such Preferred Stock.

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<PAGE> 31
ARTICLE II

THE SECURITIES

SECTION 2.1 Form and Dating.

(a) The Initial Securities and the Trustee's
certificate of authentication shall be substantially in the form of Exhibit A
annexed hereto, which is part of this Indenture. The Exchange Securities and the
Trustee's certificate of authorization shall be substantially in the form of
Exhibit B annexed hereto, which is part of this Indenture. The Securities may
have notations, legends or endorsements required by law, stock exchange rule or
usage. Each Security shall be dated the date of its authentication.

The terms and provisions contained in the forms of Securities
annexed hereto as Exhibit A and Exhibit B shall constitute, and are expressly
made, a part of this Indenture. To the extent applicable, the Company and the
Trustee, by their execution and delivery of this Indenture, expressly agree to
such terms and provisions and to be bound thereby.

(b) Securities offered and sold in reliance on Rule
144A shall be issued initially in the form of one or more permanent global
Securities in registered form, substantially in the form as above recited (the
"U.S. Global Note"), deposited with the Trustee, as custodian for the
Depositary, duly executed by the Company and authenticated by the Trustee as
hereinafter provided. The aggregate principal amount of the U.S. Global Note may
from time to time be increased or decreased by adjustments made on the records
of the Trustee, as custodian for the Depositary or its nominee, as hereinafter
provided.

Securities offered and sold in offshore transactions in
reliance on Regulation S shall be issued initially in the form of one or more
temporary global Securities in registered form substantially in the form as
above recited (the "Temporary Offshore Global Note") deposited with the Trustee,
as custodian for the Depositary, duly executed by the Company and authenticated
by the Trustee as hereinafter provided. At any time beginning 40 days after the
later of the commencement of the offering and the closing in connection with the
Initial Securities (the "Offshore Notes Exchange Date"), upon receipt by the
Trustee and the Company of a certificate substantially in the form of Exhibit C
hereto, one or more permanent global Notes in registered form substantially in
the form as

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<PAGE> 32
above recited (the "Permanent Offshore Global Note" and, together with the
Temporary Offshore Global Note, the "Offshore Global Note") duly executed by the
Company and authenticated by the Trustee as hereinafter provided shall be
deposited with the Trustee, as custodian for the Depositary, and the registrar
shall reflect on its books and records the date and a decrease in the principal
amount of the Temporary Offshore Global Note in an amount equal to the principal
amount of the beneficial interest in the Temporary Offshore Global Note
transferred.

Securities offered and sold in reliance on Regulation D under
the Securities Act shall be issued in the form of permanent certificated
Securities in registered form in substantially the form as above recited (the
"U.S. Physical Notes"). Securities issued pursuant to Section 2.7 in exchange
for interests in the Offshore Global Note shall be in the form of permanent
certificated Securities in registered form substantially in the form as above
recited (the "Offshore Physical Notes").

The Offshore Physical Notes and U.S. Physical Notes are
sometimes collectively herein referred to as the "Physical Notes." The U.S.
Global Note and the Offshore Global Note are sometimes referred to as the
"Global Notes."

The definitive Securities shall be typed, printed, lithographed
or engraved or produced by any combination of these methods or may be produced
in any other manner permitted by the rules of any securities exchange on which
the Securities may be listed, all as determined by the officers executing such
Securities, as evidenced by their execution of such Securities.

(c) Unless and until an Initial Security is exchanged
for an Exchange Security in connection with an effective Registration Statement
pursuant to the Registration Rights Agreement, the U.S. Global Note, Temporary
Offshore Global Note and each U.S. Physical Note shall bear the following legend
on the face thereof:

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<PAGE> 33
TUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR
(B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE
501(a)(1), (2), (3), OR (7) OF REGULATION D UNDER THE SECURITIES ACT)
(AN "INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON
AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN COMPLIANCE
WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL
NOT, WITHIN THREE YEARS AFTER THE LATER OF THE ORIGINAL ISSUANCE OF
THIS SECURITY OR THE LAST DATE ON WHICH THIS SECURITY WAS HELD BY AN
AFFILIATE OF THE COMPANY, RESELL OR OTHERWISE TRANSFER THIS SECURITY
EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE
UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH
RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN
INSTITUTIONAL ACCREDITED INVESTOR THAT PRIOR TO SUCH TRANSFER,
FURNISHED TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER
OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE
TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL
AMOUNT OF SECURITIES AT THE TIME OF TRANSFER OF LESS THAN $250,000, AN
OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN
COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN AN
OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES
ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE
144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3)
AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY IS
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN
CONNECTION WITH ANY TRANSFER OF THIS SECURITY WITHIN THREE YEARS AFTER
THE LATER OF THE ORIGINAL ISSUANCE OF THIS SECURITY OR THE LAST DATE ON
WHICH THIS SECURITY WAS HELD BY AN AFFILIATE OF THE COMPANY, THE HOLDER
MUST CHECK THE APPROPRIATE BOX SET FORTH HEREIN RELATING TO THE MANNER
OF SUCH

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<PAGE> 34
TRANSFER AND SUBMIT THIS SECURITY TO THE TRUSTEE. IF THE PROPOSED
TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR, THE HOLDER MUST,
PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE COMPANY SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM
MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE
PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE
TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE
THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO
REGISTER ANY TRANSFER OF THIS SECURITY IN VIOLATION OF THE FOREGOING
RESTRICTIONS.

Each Global Note, whether or not an Exchange Note, shall bear
the following legend on the face thereof:

UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE
COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN
SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC
(AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE
OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.

TRANSFERS OF THIS SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT
NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH
IN SECTION 2.8 OF THE INDENTURE.

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<PAGE> 35
SECTION 2.2 Execution and Authentication.

Two Officers shall sign the Securities for the Company by
manual or facsimile signature. The Company's seal shall be impressed, affixed,
imprinted or reproduced on the Securities and may be in facsimile form.

If an Officer whose signature is on a Security no longer holds
that office at the time the Security is authenticated, the Security shall
nevertheless be valid.

A Security shall not be valid until authenticated by the manual
signature of an authorized signatory of the Trustee. The signature shall be
conclusive evidence that the Security has been authenticated under this
Indenture.

The Trustee shall authenticate (i) Initial Securities for
original issue in an aggregate principal amount of $180,000,000 and (ii)
Exchange Securities for issue only in exchange pursuant to the Registration
Rights Agreement, for a like principal amount of Initial Securities, in each
case, upon a written order of the Company signed by two Officers. Such order
shall specify the amount of the Securities to be authenticated and the date on
which the original issue of Securities is to be authenticated and whether the
Securities are to be Initial Securities or Exchange Securities. The aggregate
principal amount of Securities outstanding at any time may not exceed
$180,000,000 except as provided in Section 2.9.

The Trustee shall initially act as authenticating agent and may
subsequently appoint another Person acceptable to the Company as authenticating
agent to authenticate Securities. Unless limited by the terms of such
appointment, an authenticating agent may authenticate Securities whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same rights as an Agent to deal with the Company or an Affiliate of the Company.
Provided that the authentication agent has entered into an agreement with the
Company concerning the authentication agent's duties, the Trustee shall not be
liable for any act or any failure of the authenticating agent to perform any
duty either required herein or authorized herein to be performed by such person
in accordance with this Indenture.

The Securities shall be issued only in registered form without
coupons and only in denominations of $1,000 and any integral multiple thereof.

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<PAGE> 36
SECTION 2.3 Registrar and Paying Agent.

The Company shall maintain an office or agency where Securities
may be presented for registration of transfer or for exchange ("Registrar") and
an office or agency where Securities may be presented for payment ("Paying
Agent"). The Registrar shall keep a register of the Securities and of their
transfer and exchange. The Company may appoint one or more co-registrars and one
or more additional paying agents. The term "Paying Agent" includes any
additional paying agent and the term "Registrar" includes any co-registrar.

The Company shall enter into an appropriate agency agreement
with any Registrar, Paying Agent or co-registrar not a party to this Indenture.
The agreement shall implement the provisions of this Indenture that relate to
such agent. The Company shall promptly notify the Trustee of the name and
address of any such agent and any change in the address of such agent. If the
Company fails to maintain a Registrar or Paying Agent, the Trustee shall act as
such and shall be entitled to appropriate compensation therefor pursuant to
Section 6.7. The Company or any Subsidiary or Affiliate of the Company may act
as Paying Agent, Registrar, co-registrar or transfer agent.

The Company initially appoints the Trustee as Registrar and
Paying Agent, and STC as an additional paying agent and co-registrar, in
connection with the Securities.

SECTION 2.4 Paying Agent To Hold Money in Trust.

On or prior to 11:00 a.m., eastern standard time, on each due
date of the principal and interest on any Security (including any redemption
date fixed under the terms of such Security or this Indenture) the Company shall
deposit with the Paying Agent a sum of money, in immediately available funds,
sufficient to pay such principal and interest in funds available when such
becomes due. The Company shall require each Paying Agent (other than the Trustee
and STC) to agree in writing that the Paying Agent shall hold in trust for the
benefit of Securityholders or the Trustee all money held by the Paying Agent for
the payment of principal of or interest on the Securities (whether such money
has been paid to it by the Company or any other obligor on the Securities) and
shall notify the Trustee of any default by the Company (or any other obligor on
the Securities) in making any such payment. If the Company or a Subsidiary or an
affiliate of the Company acts as Paying Agent, it shall segregate the money held
by it as Paying Agent and hold it as a separate trust fund for the benefit of
the

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<PAGE> 37
Securityholders. If the Company defaults in its obligation to deposit funds for
the payment of principal and interest the Trustee may, during the continuation
of such default, require a Paying Agent to pay all money held by it to the
Trustee. The Company at any time may require a Paying Agent to pay all money
held by it to the Trustee and to account for any funds disbursed by it. Upon
doing so, the Paying Agent (other than the Company or a Subsidiary or Affiliate
of the Company) shall have no further liability for the money delivered to the
Trustee.

SECTION 2.5 Securityholder Lists.

The Trustee shall preserve in as current a form as reasonably
practicable the most recent list available to it of the names and addresses of
Securityholders. If the Trustee is not the Registrar, the Company shall furnish
to the Trustee at least five Business Days before each Interest Payment Date and
at such other times as the Trustee may request in writing a list in such form
and as of such date as the Trustee may reasonably require of the names and
addresses of the Securityholders, and the Company shall otherwise comply with
TIA Section 312(a).

SECTION 2.6 Transfer and Exchange.

(a) The Securities shall be transferable only upon the
surrender of a Security for registration of transfer. When a Security is
presented to the Registrar or a co-registrar with a request to register a
transfer, the Registrar shall register the transfer as requested if the
requirements of Section 8-401(1) of the Uniform Commercial Code are met (and the
Registrar shall be entitled to assume such requirements have been met unless it
receives written notice to the contrary), the requirements of Section 2.7 or
Section 2.8 of this Indenture, if applicable, are met and, if so required by the
Trustee or the Company, if the Security presented is accompanied by a written
instrument of transfer in form satisfactory to the Trustee and the Company, duly
executed by the registered owner or by his or her attorney duly authorized in
writing. When Securities are presented to the Registrar or a co-registrar with a
request to exchange them for an equal principal amount of Securities of other
authorized denominations (including on exchange of Initial Securities for
Exchange Securities), the Registrar shall make the exchange as requested if the
same requirements are met; provided that no exchanges of Initial Securities for
Exchange Securities shall occur until a Registration Statement shall have been
declared effective by the SEC and that any Initial Securities that are exchanged
for Exchange Securities shall be cancelled by the Trustee. To permit
registration of transfers and exchanges, the Company shall execute and the
Trustee shall authenticate Securities at the

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<PAGE> 38
Registrar's or co-registrar's request. The Depositary shall, by acceptance of a
Global Note, agree that transfers of beneficial interests in such Global Note
may be effected only through a book-entry system maintained by the Depositary
(or its agent), and that ownership of a beneficial interest in the Global Note
shall be required to be reflected in a book entry.

No service charge shall be made for any registration of
transfer or exchange of the Securities, but the Company may require payment of a
sum sufficient to cover any transfer tax or similar governmental charge payable
in connection therewith (other than any such transfer taxes or similar
governmental charge payable upon exchange pursuant to Section 2.12 or 8.5 of
this Indenture).

The Company shall not be required to make and the Registrar
need not register transfers or exchanges of Securities selected for redemption
(except, in the case of Securities to be redeemed in part, the portion thereof
not to be redeemed) or for a period of 15 days before a selection of Securities
to be redeemed or 15 days before an interest payment date.

Prior to the due presentation for registration of transfer of
any Security, the Company, the Trustee, the Paying Agent, the Registrar or any
co-registrar may deem and treat the person in whose name a Security is
registered as the absolute owner of such Security for the purpose of receiving
payment of principal of and interest on such Security and for all other purposes
whatsoever, whether or not such Security is overdue, and none of the Company,
the Trustee, the Paying Agent, the Registrar or any co-registrar shall be
affected by notice to the contrary.

SECTION 2.7 Book-Entry Provisions for U.S. Global Note and Offshore
Global Note.

(a) The U.S. Global Note and Offshore Global Note
initially shall (i) be registered in the name of the Depositary for such Global
Notes or the nominee of such Depositary, (ii) be delivered to the Trustee as
custodian for such Depositary and (iii) bear legends as set forth in Section
2.1(c).

Members of, or participants in, the Depositary ("Agent
Members") shall have no rights under this Indenture with respect to any U.S.
Global Note or Offshore Global Note, as the case may be, held on their behalf by
the Depositary, or the Trustee as its custodian, or under the U.S. Global Note
or Offshore Global Note, as the case may be, and the Depositary may be treated
by the

33
<PAGE> 39
Company, the Trustee and any agent of the Company or the Trustee as the absolute
owner of such U.S. Global Note or Offshore Global Note, as the case may be, for
all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall
prevent the Company, the Trustee or any agent of the Company or the Trustee,
from giving effect to any written certification, proxy or other authorization
furnished by the Depositary or impair, as between the Depositary and its Agent
Members, the operation of customary practices governing the exercise of the
rights of a holder of any Security.

(b) Transfers of the U.S. Global Note and the Offshore
Global Note shall be limited to transfers of such U.S. Global Note or Offshore
Global Note in whole, but not in part, to the Depositary, its successors or
their respective nominees. Beneficial interests in the U.S. Global Note and the
Offshore Global Note may be transferred in accordance with the applicable rules
and procedures of the Depositary and the provisions of Section 2.8 hereof. In
addition, U.S. Physical Notes and Offshore Physical Notes shall be transferred
to all beneficial owners in exchange for their beneficial interests in the U.S.
Global Note or the Offshore Global Note, as the case may be, if (i) the
Depositary notifies the Company that it is unwilling or unable to continue as
Depositary for the U.S. Global Note or the Offshore Global Note, as the case may
be, and a successor depositary is not appointed by the Company within 90 days of
such notice or (ii) an Event of Default has occurred and is continuing and the
registrar has received a request from the Depositary.

(c) Any beneficial interest in one of the Global Notes
that is transferred to a person who takes delivery in the form of an interest in
the other Global Note will, upon transfer, cease to be an interest in such
Global Note and become an interest in the other Global Note and, accordingly,
will thereafter be subject to all transfer restrictions, if any, and other
procedures applicable to beneficial interests in such other Global Note for as
long as it remains such an interest.

(d) In connection with any transfer of a beneficial
interest in the U.S. to a transferee receiving U.S. Physical Notes pursuant to
paragraph (b) of this Section 2.7, the Registrar shall reflect on its books and
records the date and a decrease in the principal amount of the U.S. Global Note
in an amount equal to the principal amount of the beneficial interest in the
U.S. Global Note to be transferred, and the Company shall execute, and the
Trustee shall authenticate and deliver, one or more U.S. Physical Notes of like
tenor and amount.

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<PAGE> 40
(e) In connection with the transfer of the entire U.S.
Global Note or Offshore Global Note to beneficial owners pursuant to paragraph
(b) of this Section 2.7, the U.S. Global Note or Offshore Global Note, as the
case may be, shall be deemed to be surrendered to the Trustee for cancellation,
and the Company shall execute, and the Trustee shall authenticate and deliver,
to each beneficial owner identified by the Depositary in exchange for its
beneficial interest in the U.S. Global Note or Offshore Global Note, as the case
may be, an equal aggregate principal amount of U.S. Physical Notes or Offshore
Physical Notes, as the case may be, of authorized denominations.

(f) Any U.S. Physical Note delivered in exchange for
an interest in the U.S. Global Note pursuant to paragraph (b) or (d) of this
Section 2.7 shall, except as otherwise provided by paragraph (f) of Section 2.8,
bear the legend regarding transfer restrictions applicable to the U.S. Physical
Note set forth in Section 2.1(c).

(g) Any Offshore Physical Note delivered in exchange
for an interest in the Offshore Global Note pursuant to paragraph (b) of this
Section 2.7 shall, except as otherwise provided by paragraph (f) of Section 2.8,
bear the legend regarding transfer restrictions applicable to the Offshore
Physical Note set forth in Section 2.1(c).

(h) The registered holder of the U.S. Global Note and
the Offshore Global Note may grant proxies and otherwise authorize any person,
including Agent Members and persons that may hold interests through Agent
Members, to take any action which such holder is entitled to take under this
Indenture or the Securities.

SECTION 2.8 Special Transfer Provisions.

Unless and until an Initial Security is exchanged for an
Exchange Note, or the Initial Securities are registered for sale in connection
with an effective Registration pursuant to the Registration Rights Agreement,
the following provisions shall apply:

(a) Transfers to Non-QIB Institutional Accredited
Investors. The following provisions shall apply with respect to the
registration of any proposed transfer of an Initial Security to any
Institutional Accredited Investor which is not a QIB (excluding
transfers to or by Non-U.S. Persons):

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<PAGE> 41
(i) The Registrar shall register the transfer
of any Initial Security, whether or not such Initial Security
bears the Private Placement Legend, if (x) the requested
transfer is at least three years after the later of the
original Issue Date of the Initial Securities and the last date
on which such Initial Security was held by an affiliate of the
Company or (y) the proposed transferee has delivered to the
Registrar (A) a certificate substantially in the form of
Exhibit D hereto and (B) if the aggregate principal amount of
the Initial Securities being transferred is less than $250,000
at the time of such transfer, an opinion of counsel acceptable
to the Company and the Registrar that such transfer is in
compliance with the Securities Act.

(ii) If the proposed transferor is an Agent
Member holding a beneficial interest in the U.S. Global Note,
upon receipt by the Registrar of (x) the documents, if any,
required by paragraph (i) and (y) instructions given in
accordance with the Depositary's and the Registrar's
procedures, the Registrar shall reflect on its books and
records the date and decrease in the principal amount of the
U.S. Global Note in an amount equal to the principal amount of
the beneficial interest in the U.S. Global Note to be
transferred, and the Company shall execute, and the Trustee
shall authenticate and deliver, one or more U.S. Physical Notes
of like tenor and amount.

(b) Transfers to QIBs. The following provisions shall
apply with respect to the registration of any proposed transfer of an
Initial Security to a QIB (excluding transfers to or by Non-U.S.
Persons):

(i) If the Note to be transferred consists of
U.S. Physical Notes or an interest in the Temporary Offshore
Global Note, the Registrar shall register the transfer if such
transfer is being made by a proposed transferor who has checked
the box provided for on the form of Initial Security stating,
or has otherwise advised the Company and the Registrar in
writing, that the sale has been made in compliance with the
provisions of Rule 144A to a transferee who has signed the
certification provided for on the form of Initial Security
stating, or has otherwise advised the Company and the Registrar
in writing, that it is purchasing the Initial Security for its
own account or an account with respect to which it

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<PAGE> 42
exercises sole investment discretion and that it and any such
account is a QIB within the meaning of Rule 144A, and is aware
that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding
the Company as it has requested pursuant to Rule 144A or has
determined not to request such information and that it is aware
that the transferor is relying upon its foregoing
representations in order to claim the exemption from
registration provided by Rule 144A.

(ii) If the proposed transferee is an Agent
Member, and the Initial Security to be transferred consists of
U.S. Physical Notes or an interest in the Temporary Offshore
Global Note, upon receipt by the registrar of the documents
referred to in clause (i) and instructions given in accordance
with the Depositary's and the Registrar's procedures, the
Registrar shall reflect on its books and records the date and
an increase in the principal amount of the U.S. Global Note in
an amount equal to the principal amount of the U.S. Physical
Note or the interest in the Temporary Offshore Global Note, as
the case may be, to be transferred, and the Trustee shall
cancel the Physical Note or decrease the amount of the
Temporary Offshore Global Note so transferred.

(c) Transfers of Interest in the Temporary
Offshore Global Note. The following provisions shall apply with
respect to registration of any proposed transfer of interests in the
Temporary Offshore Global Note:

(i) The Registrar shall register the transfer
of any Initial Security (x) if the proposed transferee is a
Non-U.S. Person and the proposed transferor has delivered to
the Registrar a certificate substantially in the form of
Exhibit E hereto or (y) if the proposed transferee is a QIB and
the proposed transferor has checked the box provided for on the
form of Initial Security stating, or has otherwise advised the
Company and Registrar in writing, that the sale has been made
in compliance with the provisions of Rule 144A to a transferee
who has signed the certification provided for on the form of
Initial Security stating, or has otherwise advised the Company
and the Registrar in writing, that it is purchasing the Initial
Security for its own account or an account with respect to
which it exercises sole investment discretion and that it and
any such account is a QIB within the meaning of Rule

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<PAGE> 43
144A, and is aware that the sale to it is being made in
reliance on Rule 144A and acknowledges that it has received
such information regarding the Company as it has requested
pursuant to Rule 144A or has determined not to request such
information and that it is aware that the transferor is relying
upon its foregoing representations in order to claim the
exemption from registration provided by Rule 144A.

(ii) If the proposed transferee is an Agent
Member, upon receipt by the registrar of the documents referred
to in clause (i)(y) above and instructions given in accordance
with the Depositary's and the Registrar's procedures, the
Registrar shall reflect on its books and records the date and
an increase in the principal amount of the U.S. Global Note in
an amount equal to the principal amount of the Temporary
Offshore Global Note to be transferred, and the Trustee shall
decrease the amount of the Temporary Offshore Global Note so
transferred.

(d) Transfers of Interests in the Permanent
Offshore Global Note or Offshore Physical Note. The Registrar shall
register the transfer of any interests in the Permanent Offshore Global
Note or Offshore Physical Notes without requiring any additional
certification.

(e) Transfers to Non-U.S. Persons at any Time. The
following provisions shall apply with respect to any transfer of an
Initial Security to a Non-U.S. Person:

(i) Prior to the 40th day after the later of
the commencement of the offering and the closing date in
connection with the Initial Securities, the Registrar shall
register any proposed transfer of an Initial Security to a
Non-U.S. Person upon receipt of a certificate substantially in
the form of Exhibit E hereto from the proposed transferor.

(ii) On and after the 40th day after the later
of the commencement of the offering and the closing date in
connection with the Initial Securities, the Registrar shall
register any proposed transfer to any Non-U.S. Person if the
Initial Securities to be transferred is a U.S. Physical Note or
an interest in the U.S.

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<PAGE> 44
Global Note, upon receipt of a certificate substantially in the
form of Exhibit E from the proposed transferor.

(iii) (a) If the proposed transferor is an
Agent Member holding a beneficial interest in the U.S. Global
Note, upon receipt by the registrar of (x) documents, if any,
required by paragraph (ii) and (y) instructions in accordance
with the Depositary's and the Registrar's procedures, the
Registrar shall reflect on its books and records the date and a
decrease in the principal amount of the U.S. Global Note in an
amount equal to the principal amount of the beneficial interest
in the U.S. Global Note to be transferred, and (b) if the
proposed transferee is an Agent Member, upon receipt by the
Registrar of instructions given in accordance with the
Depositary's and the Registrar's procedures, the Registrar
shall reflect on its books and records the date and an increase
in the principal amount of the Offshore Global Note in an
amount equal to the principal amount of the U.S. Physical Notes
or the U.S. Global Note, as the case may be, to be transferred,
and the Trustee shall cancel the Physical Note, if any, so
transferred or decrease the amount of the U.S. Global Note.

(f) Private Placement Legend. Upon the transfer,
exchange or replacement of Securities not bearing the Private Placement
Legend, the Registrar shall deliver Securities that do not bear the
Private Placement Legend. Upon the transfer, exchange or replacement of
Securities bearing the Private Placement Legend, the Registrar shall
deliver only Securities that bear the Private Placement Legend unless
either (i) the circumstances contemplated by the second paragraph of
Section 2.1(b) or paragraphs (a)(i)(x) or (e)(ii) of this Section 2.8
exist or (ii) there is delivered to the Registrar an opinion of counsel
reasonably satisfactory to the Company and the Registrar to the effect
that neither such legend nor the related restrictions on transfer are
required in order to maintain compliance with the provisions of the
Securities Act.

(g) General. By its acceptance of any Security
bearing the Private Placement Legend, each holder of such Security
acknowledges the restrictions on transfer of such Security set forth in
this Indenture and in the Private Placement Legend and agrees that it
will transfer such Security only as provided in this Indenture. The
Registrar shall not register a transfer of any Security unless such
transfer complies with the restrictions

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<PAGE> 45
on transfer of such Security set forth in this Indenture. In connection
with any transfer of Securities, each holder agrees by its acceptance
of the Initial Securities to furnish the Registrar or the Company such
certifications, legal opinions or other information as either of them
may reasonably require to confirm that such transfer is being made
pursuant to an exemption from, or a transaction not subject to, the
registration requirements of the Securities Act; provided that
the Registrar shall not be required to determine (but may rely on a
determination made by the Company with respect to) the sufficiency of
any such certifications, legal opinions or other information.

The Registrar shall retain copies of all letters, notices and
other written communications received pursuant to Section 2.7 hereof or this
Section 2.8. The Company shall have the right to inspect and make copies of all
such letters, notices or other written communications at any reasonable time
upon the giving of reasonable written notice to the Registrar.

SECTION 2.9 Replacement Securities.

If a mutilated Security is surrendered to the Registrar or if
the Holder of a Security claims that the Security has been lost, destroyed or
wrongfully taken and the Holder furnishes to the Company and the Trustee
evidence to their satisfaction of such loss, destruction or wrongful taking, the
Company shall issue and the Trustee shall, in the absence of notice to the
Company or the Trustee that such Security has been acquired by a bona fide
purchaser, authenticate a replacement Security if the requirements of Section
8-405 of the Uniform Commercial Code are met (and the Registrar shall be
entitled to assume such requirements have been met unless it receives written
notice to the contrary) and if there is delivered to the Company and the Trustee
such security or indemnity as may be required to save each of them harmless,
satisfactory to the Company or the Trustee, as the case may be. The Company and
the Trustee may charge the Holder for their expenses in replacing a Security.

Every replacement Security is an additional obligation of the
Company and shall be entitled to the benefits of this Indenture.

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SECTION 2.10 Outstanding Securities.

The Securities outstanding at any time are all the Securities
authenticated by the Trustee except for those canceled by it, those delivered to
it for cancellation, and those described in this Section as not outstanding.

If a Security is replaced pursuant to Section 2.9, it ceases to
be outstanding unless the Trustee and the Company receive proof satisfactory to
them that the replaced Security is held by a bona fide purchaser.

If all the principal and interest on any Securities are
considered paid under Section 3.1, such Securities cease to be outstanding under
this Indenture and interest on such Securities shall cease to accrue.

If the Paying Agent (other than the Company or a Subsidiary or
an Affiliate of the Company) holds in accordance with this Indenture on a
redemption date or maturity date money sufficient to pay all principal and
interest due on that date then on and after that date such Securities cease to
be outstanding and interest on them ceases to accrue (unless there shall be a
default in such payment).

If a Security is called for redemption, the Company and the
Trustee need not treat the Security as outstanding in determining whether
Holders of the required principal amount of Securities have concurred in any
direction, waiver or consent.

Subject to Section 2.11, a Security does not cease to be
outstanding because the Company or an Affiliate thereof holds the Security.

SECTION 2.11 Determination of Holders' Action.

In determining whether the Holders of the required principal
amount of Securities have concurred in any direction, amendment, waiver or
consent, Securities owned by or pledged to the Company, any other obligor upon
the Securities or any Affiliate of the Company, or such other obligor shall be
disregarded and deemed not to be outstanding, except that for the purposes of
determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Securities which the Trustee knows are so
owned or pledged shall be so disregarded.

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SECTION 2.12 Temporary Securities.

Until definitive Securities are ready for delivery, the Company
may prepare and the Trustee shall authenticate temporary Securities. Temporary
Securities shall be substantially in the form of definitive Securities but may
have variations that the Company considers appropriate for temporary Securities.
Without unreasonable delay, the Company shall prepare and the Trustee, upon the
written order of the Company signed by two Officers, shall authenticate
definitive Securities in exchange for temporary Securities; provided, however,
that if all Initial Securities are exchanged for Exchange Securities represented
by one or more Global Notes, the Global Notes may remain in temporary form until
such Global Notes are exchanged for Physical Notes pursuant to Section 2.7(b).
Such exchange shall be made by the Company at its own expense and without any
charge therefor. Until so exchanged, temporary Securities shall be entitled to
the same rights, benefits and privileges as definitive Securities.

SECTION 2.13 Cancellation.

The Company at any time may deliver Securities to the Trustee
for cancellation. The Registrar and Paying Agent shall forward to the Trustee
any Securities surrendered to them for registration of transfer, exchange or
payment. The Trustee shall cancel all Securities surrendered for registration of
transfer, exchange, payment or cancellation and shall destroy the same or
otherwise dispose of canceled Securities as the Company directs by written order
signed by two Officers. The Company may not issue new Securities to replace
Securities that it has paid or delivered to the Trustee for cancellation.

SECTION 2.14 Defaulted Interest.

If the Company defaults in a payment of interest on the
Securities, it shall pay defaulted interest, plus any interest payable on the
defaulted interest to the extent permitted by law, in any lawful manner. It may
pay the defaulted interest to the Persons who are Securityholders on a
subsequent special record date which date shall be at least five Business Days
prior to the payment date. The Company shall fix the special record date and
payment date. At least 15 days before the special record date, the Company (or
the Trustee, in the name of and at the expense of the Company) shall mail to
Securityholders a notice that states the special record date, payment date and
amount of interest to be paid.

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ARTICLE III

COVENANTS

SECTION 3.1 Payment of Securities.

The Company shall pay the principal of and interest on the
Securities on the dates and in the manner provided in the Securities. The
Company shall pay interest on overdue principal at the rate borne by the
Securities; it shall pay interest on overdue installments of interest at the
rate borne by the Securities to the extent lawful. Principal and interest shall
be considered paid on the date due (including a redemption date) if the Trustee
or the Paying Agent (other than the Company or a Subsidiary or an Affiliate of
the Company) has received from or on behalf of the Company on or prior to 11:00
a.m., eastern standard time, on that date, in immediately available funds, money
sufficient to pay all principal and interest then due.

SECTION 3.2 Maintenance of Office or Agency.

The Company shall maintain in the Borough of Manhattan, the
City of New York, an office or agency where Securities may be surrendered for
registration of transfer or exchange or for presentation for payment and where
notices and demands to or upon the Company in respect of the Securities and this
Indenture may be served. The Company will give prompt written notice to the
Trustee of the location, and any change in the location, of such office or
agency. If at any time the Company shall fail to maintain any such required
office or agency or to furnish the Trustee with the address thereof, such
presentations, surrenders, notices and demands may be made or served at the
address of the Trustee set forth in Section 10.2 of this Indenture.

The Company may also from time to time designate one or more
other offices or agencies where the Securities may be presented or surrendered
for any or all such purposes and may from time to time rescind such
designations; provided, however, that no such designation or rescission shall in
any manner relieve the Company of its obligation to maintain an office or agency
in the Borough of Manhattan, the City of New York, for such purposes. The
Company will give prompt written notice to the Trustee of any such designation
or rescission and of any change in the location of any such other office or
agency.

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<PAGE> 49
The Company hereby initially designates the office of STC in
the Borough of Manhattan, the City of New York, as such office of the Company in
accordance with Section 2.3.

SECTION 3.3 Limitation on Restricted Payments.

(a) So long as any of the Securities are outstanding, the
Company shall not, and shall not permit any Restricted Subsidiary to, directly
or indirectly, (i) declare or pay any dividend on or make any distribution or
similar payment of any sort in respect of its Capital Stock (including any
payment in connection with any merger or consolidation involving the Company) to
the direct or indirect holders of its Capital Stock (other than dividends or
distributions payable solely in its Non-Convertible Capital Stock or rights to
acquire its Non-Convertible Capital Stock and dividends or distributions payable
solely to the Company or a Restricted Subsidiary and other than pro rata
dividends paid by a Subsidiary with respect to a series or class of its Capital
Stock the majority of which is held by the Company or a Wholly Owned Subsidiary
that is not a Foreign Subsidiary), (ii) purchase, redeem, defease or otherwise
acquire or retire for value any Capital Stock of the Company or of any direct or
indirect parent of the Company, or, with respect to the Company, exercise any
option to exchange any Capital Stock that by its terms is exchangeable solely at
the option of the Company (other than into Capital Stock of the Company which is
neither Exchangeable Stock nor Redeemable Stock), (iii) purchase, repurchase,
redeem, defease or otherwise acquire or retire for value, prior to scheduled
maturity or scheduled repayment thereof or scheduled sinking fund payment
thereon, any Subordinated Indebtedness (other than the purchase, repurchase or
other acquisition of Subordinated Indebtedness purchased in anticipation of
satisfying a sinking fund obligation, principal installment or final maturity,
in each case due within one year of the date of acquisition) or (iv) make any
Investment, other than a Controlled Non-Subsidiary Investment or a payment
described in clause (vi) of the second sentence of Section 3.11, in any
Unrestricted Subsidiary or any Affiliate of the Company other than a Restricted
Subsidiary or a Person which will become a Restricted Subsidiary as a result of
any such Investment (each such payment described in clauses (i)-(iv) of this
paragraph, a "Restricted Payment"), unless at the time of and after giving
effect to the proposed Restricted Payment:

(1) no Default or Event of Default shall have occurred
and be continuing (or would result therefrom);

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(2) the Company would be permitted to Incur an
additional $1 of Indebtedness pursuant to the provisions of Section 3.4(a); and

(3) the aggregate amount of all such Restricted
Payments subsequent to the Issue Date shall not exceed the sum of:

(A) 50% of aggregate Consolidated Net Income accrued during the
period (treated as one accounting period) from January 1, 1994 to the
end of the most recent fiscal quarter for which financial statements
are available (or if such Consolidated Net Income is a deficit, minus
100% of such deficit), and minus 100% of the amount of any write-downs,
write-offs, other negative reevaluations and other negative
extraordinary charges not otherwise reflected in Consolidated Net
Income during such period;

(B) if the Securities are Investment Grade immediately
following the Restricted Payment in connection with which this
calculation is made, an additional 25% of Consolidated Net Income for
any period of one or more consecutive completed fiscal quarters ending
with the last fiscal quarter completed prior to the date of such
Restricted Payment during which the Securities were Investment Grade
for the entire period;

(C) the aggregate Net Cash Proceeds received by the Company
after January 1, 1994 from the sale of Capital Stock (other than
Redeemable Stock or Exchangeable Stock) of the Company to any person
other than the Company, any of its Subsidiaries or an employee stock
ownership plan;

(D) the amount by which the principal amount of, and any
accrued interest on, Indebtedness of the Company or its Restricted
Subsidiaries is reduced on the Company's Consolidated balance sheet
upon the conversion or exchange (other than by a Subsidiary) subsequent
to the Issue Date of any Indebtedness of the Company or any Restricted
Subsidiary converted or exchanged for Capital Stock (other than
Redeemable Stock or Exchangeable Stock) of the Company (less the amount
of any cash, or the value of any other property, distributed by the
Company or any Restricted Subsidiary upon such conversion or exchange);

(E) an amount equal to the net reduction in Investments in
Unrestricted Subsidiaries resulting from payments of interest on
Indebtedness, dividends, repayments of loans or advances, or other
transfers of assets, in

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each case to the Company or any Restricted Subsidiary from Unrestricted
Subsidiaries, or from redesignations of Unrestricted Subsidiaries as
Restricted Subsidiaries (valued in each case as provided in the
definition of "Investments"), not to exceed in the case of any
Unrestricted Subsidiary the amount of Investments previously made by
the Company or any Restricted Subsidiary in such Unrestricted
Subsidiary; and

(F) $5 million.

(b) The failure to satisfy the conditions set forth in clauses
(2) and (3) of Subsection 3.3(a) shall not prohibit any of the following as long
as the condition set forth in clause (1) of Subsection 3.3(a) is satisfied
(except as set forth below):

(i) dividends paid within 60 days after the date of
declaration thereof if at such date of declaration such dividend would
have complied with Subsection 3.3(a); provided, however, that following
the occurrence of Public Market, notwithstanding clause (1) of Section
3.3(a), the occurrence or existence of a Default at the time of payment
shall not prohibit the payment of such dividends;

(ii) any purchase, redemption, defeasance, or other
acquisition or retirement for value of Capital Stock or Subordinated
Indebtedness of the Company made by exchange for, or out of the
proceeds of the substantially concurrent sale of, Capital Stock of the
Company (other than Redeemable Stock or Exchangeable Stock and other
than stock issued or sold to a Subsidiary or to an employee stock
ownership plan), provided, however, that notwithstanding clause (1) of
Subsection 3.3(a), the occurrence or existence of a Default or Event of
Default shall not prohibit, for purposes of this Section, the making of
such purchase, redemption, defeasance or other acquisition or
retirement, and provided, further such purchase, redemption, defeasance
or other acquisition or retirement shall not be included in the
calculation of Restricted Payments made for purposes of clause (3) of
Subsection 3.3(a) and provided, further, that the Net Cash Proceeds
from such sale shall be excluded from sub-clause (C) of clause (3) of
Subsection 3.3(a);

(iii) any purchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Indebtedness of the
Company made by exchange for, or out of the proceeds of the
substantially

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concurrent Incurrence of for cash (other than to a Subsidiary), new
Indebtedness of the Company, (A) such new Indebtedness shall be
contractually subordinated in right of payment to the Securities at
least to the same extent as the Indebtedness being so redeemed,
repurchased, defeased, acquired or retired, (B) if the Indebtedness
being purchased, redeemed, defeased or acquired or retired for value is
Non-Recourse Debt, such new Indebtedness shall be Non-Recourse Debt,
(C) such new Indebtedness has a Stated Maturity either (1) no earlier
than the Stated Maturity of the Indebtedness redeemed, repurchased,
defeased, acquired or retired or (2) after the Stated Maturity of the
Securities and (D) such Indebtedness has an Average Life equal to or
greater than the Average Life of the Indebtedness redeemed,
repurchased, defeased, acquired or retired, and provided, further, that
such purchase, redemption, defeasance or other acquisition or
retirement shall not be included in the calculation of Restricted
Payments made for purposes of clause (3) of Subsection 3.3(a);

(iv) any purchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Indebtedness upon a
Change of Control or an Asset Sale to the extent required by the
indenture or other agreement pursuant to which such Subordinated
Indebtedness was issued, but only if the Company (A) in the case of a
Change of Control, has made an offer to repurchase the Securities as
described under Section 3.8 or (B) in the case of an Asset Sale, has
applied the Net Available Cash from such Asset Sale in accordance with
the provisions described under Section 3.12; and

(v) dividends paid to Parent in any fiscal year not in
excess of the lesser of (A) the sum of (1) $300,000 plus (2) 10% of the
Company's paid-in capital paid by Parent and (B) $1,050,000.

SECTION 3.4 Limitation on Incurrence of Indebtedness.

(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, Incur any Indebtedness, except that the
Company may Incur Indebtedness if, after giving effect thereto, the Consolidated
Coverage Ratio would be greater than 2:1.

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(b) Notwithstanding the foregoing, this Section shall not limit
the ability of the Company or any Restricted Subsidiary to Incur the following
Indebtedness:

(i) Refinancing Indebtedness (except with respect to
Indebtedness referred to in clause (ii), (iii) or (iv) below);

(ii) in addition to any Indebtedness otherwise
permitted to be Incurred hereunder, Indebtedness of the Company at any
one time outstanding in an aggregate principal amount not to exceed
$5,000,000 and provided that the proceeds of such Indebtedness shall
not be used for the purpose of making any Restricted Payments pursuant
to clause (i) or (ii) of Section 3.3(a);

(iii) Indebtedness of the Company which is owed to and
held by a Wholly Owned Subsidiary and Indebtedness of a Wholly Owned
Subsidiary which is owed to and held by the Company or a Wholly Owned
Subsidiary; provided, however, that any subsequent
issuance or transfer of any Capital Stock which results in any such
Wholly Owned Subsidiary ceasing to be a Wholly Owned Subsidiary or any
transfer of such Indebtedness (other than to the Company or a Wholly
Owned Subsidiary) shall be deemed, in each case, to constitute the
Incurrence of such Indebtedness by the Company or by a Wholly Owned
Subsidiary, as the case may be;

(iv) Indebtedness of the Company under the Bank Credit
Agreement which, when taken together with the aggregate amount of
Indebtedness Incurred pursuant to clause (viii) of this subsection, is
not in excess of $50,000,000, and Indebtedness of the Company under the
Working Capital Credit Agreement not in excess of $5,000,000;

(v) Acquired Indebtedness; provided,
however, that the Company would have been able to Incur such
Indebtedness at the time of the Incurrence thereof pursuant to Section
3.4(a);

(vi) Indebtedness of the Company or a Restricted
Subsidiary outstanding on the Issue Date (other than Indebtedness
referred to in clause (iv) above and Indebtedness being repaid or
retired with the proceeds of the Offering);

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(vii) Non-Recourse Debt of a Restricted Subsidiary
(other than a Restricted Subsidiary existing on the Issue Date), the
proceeds of which are used to acquire, develop, improve or construct a
new Facility of such Restricted Subsidiary;

(viii) guarantees by the Company of Indebtedness of
Restricted Subsidiaries which, but for such guarantees, would be
permitted to be Incurred pursuant to clause (vii) of this Section
3.4(b), provided that the aggregate principal amount of
Indebtedness Incurred pursuant to this clause (viii), when taken
together with outstanding Indebtedness Incurred under the Bank Credit
Agreement pursuant to clause (iv) of this Section 3.4(b), is not in
excess of $50,000,000;

(ix) Related Asset Indebtedness, provided that
at the time of the Incurrence thereof, giving pro forma
effect to the Incurrence thereof, Moody's and S&P shall have affirmed
their respective ratings of the Securities in effect prior to the
Incurrence of such Related Asset Indebtedness; and

(x) the Securities.

(c) Notwithstanding Sections 3.4(a) and (b), the Company shall
not Incur any Indebtedness if the proceeds thereof are used, directly or
indirectly, to repay, prepay, redeem, defease, retire, refund or refinance any
Subordinated Indebtedness unless such repayment, prepayment, redemption,
defeasance, retirement, refunding or refinancing is not prohibited by Section
3.3 or unless such Indebtedness shall be contractually subordinated to the
Securities at least to the same extent as such Subordinated Indebtedness.

SECTION 3.5 Limitation on Payment Restrictions Affecting Subsidiaries.

The Company shall not, and shall not permit any Subsidiary to,
create or otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary to (i)
pay dividends to or make any other distributions on its Capital Stock, or pay
any Indebtedness or other obligations owed to the Company or any other
Restricted Subsidiary, (ii) make any Investments in the Company or any other
Restricted Subsidiary or (iii) transfer any of its property or assets to the
Company or any other Restricted Subsidiary; provided, however, that the
foregoing shall not apply to:

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<PAGE> 55
(a) any encumbrance or restriction existing pursuant to this
Indenture or any other agreement or instrument as in effect or entered into on
the Issue Date;

(b) any encumbrance or restriction with respect to a Subsidiary
pursuant to an agreement relating to any Acquired Indebtedness; provided,
however, that such encumbrance or restriction was not Incurred in connection
with or in contemplation of such Subsidiary becoming a Subsidiary;

(c) any encumbrance or restriction pursuant to an agreement
effecting a refinancing of Indebtedness referred to in clause (a) or (b) above
or contained in any amendment or modification with respect to such Indebtedness;
provided, however, that the encumbrances and restrictions
contained in any such agreement, amendment or modification are no less favorable
in any material respect with respect to the matters referred to in clauses (i),
(ii) and (iii) above than the encumbrances and restrictions with respect to the
Indebtedness being refinanced, amended or modified;

(d) in the case of clause (iii) above, customary non-assignment
provisions of (A) any leases governing a leasehold interest, (B) any supply,
license or other agreement entered into in the ordinary course of business of
the Company or any Subsidiary or (C) any security agreement relating to a Lien
permitted by Section 3.7(l), that, in the reasonable determination of the
President or Chief Financial Officer of the Company (x) is required in order to
obtain such financing referred to in Section 3.7(l) and (y) is customary for
such financings;

(e) any restrictions with respect to a Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of all or
substantially all of the Capital Stock or assets of such Subsidiary pending the
closing of such sale or disposition;

(f) any encumbrance imposed pursuant to the terms of
Indebtedness incurred pursuant to Section 3.4(b)(vii), provided that such
encumbrance in the written opinion of the President or Chief Financial Officer
of the Company, (x) is required in order to obtain such financing, (y) is
customary for such financings and (z) applies only to the assets of or revenues
of the applicable Facility; or

(g) any encumbrance or restriction existing by reason of
applicable law.

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SECTION 3.6 Limitation on Sale/Leaseback Transactions.

The Company shall not, and shall not permit any Restricted
Subsidiary to, enter into any Sale/Leaseback Transaction unless (i) the Company
or such Subsidiary would be entitled to create a Lien on such property securing
Indebtedness in an amount equal to the Attributable Debt with respect to such
transaction without equally and ratably securing the Securities pursuant to
Section 3.7 or (ii) the net proceeds of such sale are at least equal to the fair
value (as determined by the Board of Directors) of such property and the Company
or such Subsidiary shall apply or cause to be applied an amount in cash equal to
the net proceeds of such sale to the retirement, within 30 days of the effective
date of any such arrangement, of Senior Indebtedness or Indebtedness of a
Restricted Subsidiary; provided, however, that in addition to the transactions
permitted pursuant to the foregoing clauses (i) and (ii), the Company or any
Restricted Subsidiary may enter into a Sale/Leaseback Transaction as long as the
sum of (x) the Attributable Debt with respect to such Sale/Leaseback Transaction
and all other Sale/Leaseback Transactions entered into pursuant to this proviso,
plus (y) the amount of outstanding Indebtedness secured by Liens Incurred
pursuant to the final proviso to Section 3.7, does not exceed 10% of
Consolidated Net Tangible Assets as determined based on the consolidated balance
sheet of the Company as of the end of the most recent fiscal quarter for which
financial statements are available; and provided, further, that a Restricted
Subsidiary that is not a Restricted Subsidiary on the Issue Date may enter into
a Sale/Leaseback Transaction with respect to property owned by such Restricted
Subsidiary, the proceeds of which are used to acquire, develop, construct, or
repay (within 365 days of the commencement of commercial operation of such
Facility) Indebtedness Incurred to acquire, develop or construct, a new Facility
of such Restricted Subsidiary, as long as neither the Company nor any other
Restricted Subsidiary shall have any obligation or liability in connection
therewith.

SECTION 3.7 Limitation on Liens.

The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, incur or permit to exist any Lien of any
nature whatsoever on any of its properties (including, without limitation,
Capital Stock), whether owned at the date of such Indenture or thereafter
acquired, other than (a) pledges or deposits made by such Person under workers'
compensation, unemployment insurance laws or similar legislation, or good faith
deposits in connection with bids, tenders, contracts (other than for payment of
Indebtedness) or leases to which such Person is a party, or deposits to secure
statutory or

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regulatory obligations of such Person or deposits of cash of United States
Government bonds to secure surety, appeal or performance bonds to which such
Person is a party, or deposits as security for contested taxes or import duties
or for the payment of rent, in each case Incurred in the ordinary course of
business; (b) Liens imposed by law such as carriers', warehousemen's and
mechanics' Liens, in each case, arising in the ordinary course of business and
with respect to amounts not yet due or being contested in good faith by
appropriate legal proceedings promptly instituted and diligently conducted and
for which a reserve or other appropriate provision, if any, as shall be required
in conformity with GAAP shall have been made; or other Liens arising out of
judgments or awards against such Person with respect to which such Person shall
then be diligently prosecuting appeal or other proceedings for review; (c) Liens
for property taxes not yet subject to penalties for non-payment or which are
being contested in good faith and by appropriate legal proceedings promptly
instituted and diligently conducted and for which a reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall have been
made; (d) Liens in favor of issuers or surety bonds or letters of credit issued
pursuant to the request of and for the account of such Person in the ordinary
course of its business; provided, however, that such letters of credit may not
constitute Indebtedness; (e) minor survey exceptions, minor encumbrances,
easements or reservations of, or rights of others for, rights of way, sewers,
electric lines, telegraph and telephone lines and other similar purposes, or
zoning or other restrictions as to the use of real properties or liens
incidental to the conduct of the business of such Person or to the ownership of
its properties which were not Incurred in connection with Indebtedness or other
extensions of credit and which do not in the aggregate materially adversely
affect the value of said properties or materially impair their use in the
operation of the business of such Person; (f) Liens securing Indebtedness
Incurred to finance the construction or purchase of, or repairs, improvements or
additions to, property; provided, however, that the Lien may not extend to any
other property owned by the Company or any Restricted Subsidiary at the time the
Lien is incurred, and the Indebtedness secured by the Lien may not be issued
more than 270 days after the later of the acquisition, completion of
construction, repair, improvement, addition or commencement of full operation of
the property subject to the Lien; (g) Liens existing on the Issue Date (other
than Liens relating to Indebtedness or other obligations being repaid or liens
that are otherwise extinguished with the proceeds of the Offering); (h) Liens on
property or shares of stock of a Person at the time such Person becomes a
Subsidiary; provided, however, that any such Lien may not extend to any other
property owned by the Company or any Restricted Subsidiary; (i) Liens on
property at the time the Company or a Subsidiary acquires the property,
including any acquisi-

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tion by means of a merger or consolidation with or into the Company or a
Subsidiary; provided, however, that such Liens are not incurred in connection
with, or in contemplation of, such merger or consolidation; and provided,
further, that the Lien may not extend to any other property owned by the Company
or any Restricted Subsidiary; (j) Liens securing Indebtedness or other
obligations of a Subsidiary owing to the Company or a Wholly Owned Subsidiary;
(k) Liens incurred by a Person other than the Company or any Subsidiary on
assets that are the subject of a Capitalized Lease Obligation to which the
Company or a Subsidiary is a party; provided, however, that any such Lien may
not secure Indebtedness of the Company or any Subsidiary (except by virtue of
clause (ix) of the definition of "Indebtedness") and may not extend to any other
property owned by the Company or any Restricted Subsidiary; (l) Liens incurred
by a Restricted Subsidiary on its assets to secure Non-Recourse Debt Incurred
pursuant to Section 3.4(b)(vii), provided that such Lien (A) is Incurred at the
time of the initial Incurrence of such Indebtedness and (B) does not extend to
any assets or property of the Company or any other Restricted Subsidiary; (m)
Liens not in respect of Indebtedness arising from Uniform Commercial Code
financing statements for informational purposes with respect to leases Incurred
in the ordinary course of business and not otherwise prohibited by this
Indenture; (n) Liens not in respect of Indebtedness consisting of the interest
of the lessor under any lease Incurred in the ordinary course of business and
not otherwise prohibited by this Indenture; (o) Liens which constitute banker's
liens, rights of set-off or similar rights and remedies as to deposit accounts
or other funds maintained with any bank or other financial institution, whether
arising by operation of law or pursuant to contract; (p) 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 the foregoing
clauses (f), (g), (h) and (i), provided, however, that (x) such new Lien shall
be limited to all or part of the same property that secured the original Lien
(plus improvements on such property) and (y) the Indebtedness secured by such
Lien at such time 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 such Indebtedness); and (q) Liens by which
the Securities are secured equally and ratably with other Indebtedness pursuant
to this Section 3.7; in any such case without effectively providing that the
Securities shall be secured equally and ratably with (or prior to) the
obligations so secured for so long as such obligations are so secured; provided,
however, that the Company may incur other Liens to secure Indebtedness as long
as the sum of (x) the amount of outstanding Indebtedness secured by Liens
incurred pursuant to this proviso plus (y) the Attributable Debt with respect to
all outstanding leases in

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connection with Sale/Leaseback Transactions entered into pursuant to the first
proviso to Section 3.6 does not exceed 10% of Consolidated Net Tangible Assets
as determined with respect to the Company as of the end of the most recent
fiscal quarter for which financial statements are available.

SECTION 3.8 Change of Control.

In the event of a Change of Control Triggering Event, the
Company shall make an offer to purchase (the "Change of Control Offer") the
Securities then outstanding at a purchase price equal to one hundred one percent
(101%) of the principal amount (excluding any premium) thereof plus accrued and
unpaid interest to the Change of Control Purchase Date (as defined below) on the
terms set forth in this Section. The date on which the Company shall purchase
the Securities pursuant to this Section (the "Change of Control Purchase Date")
shall be no earlier than 30 days, nor later than 60 days, after the notice
referred to below is mailed, unless a longer period shall be required by law.
The Company shall notify the Trustee in writing promptly after the occurrence of
any Change of Control Triggering Event of the Company's obligation to offer to
purchase all of the Securities.

Notice of a Change of Control Offer shall be mailed by the
Company to the Holders of the Securities at their last registered address (with
a copy to the Trustee and the Paying Agent) within thirty (30) days after a
Change in Control Triggering Event has occurred. The Change of Control Offer
shall remain open from the time of mailing until a date not more than five (5)
Business Days before the Change of Control Purchase Date. The notice shall
contain all instructions and materials necessary to enable such Holders to
tender Securities (in whole or in part) pursuant to the Change of Control Offer.
The notice, which shall govern the terms of the Change of Control Offer, shall
state:

(a) that the Change of Control Offer is being made
pursuant to this Section;

(b) the purchase price and the Change of Control
Purchase Date;

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(d) that any Security accepted for payment pursuant to
the Change of Control Offer shall cease to accrue interest after the
Change of Control Purchase Date;

(e) that any Holder electing to have a Security
purchased (in whole or in part) pursuant to a Change of Control Offer
will be required to surrender the Security, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Security
completed, to the Paying Agent at the address specified in the notice
(or otherwise make effective delivery of the Security pursuant to
book-entry procedures and the related rules of the applicable
depositories) at least five (5) Business Days before the Change of
Control Purchase Date; and

(f) that any Holder will be entitled to withdraw his
or her election if the Paying Agent receives, not later than three (3)
Business Days prior to the Change of Control Purchase Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of the Security the Holder delivered for
purchase and a statement that such Holder is withdrawing his or her
election to have the Security purchased.

On the Change of Control Purchase Date, the Company shall (i)
accept for payment Securities or portions thereof surrendered and properly
tendered, and not withdrawn, pursuant to the Change of Control Offer, (ii)
deposit with the Paying Agent, no later than 11:00 a.m. eastern standard time,
money, in immediately available funds, sufficient to pay the purchase price of
all Securities or portions thereof so accepted and (iii) deliver to the Trustee,
no later than 11:00 a.m. eastern standard time, Securities so accepted together
with an Officers' Certificate stating that such Securities have been accepted
for payment by the Company. The Paying Agent shall promptly, and in any event
within one (1) Business Day following the deposit and delivery specified in
clauses (ii) and (iii) of the immediately preceding sentence, mail or deliver to
Holders of Securities so accepted payment in an amount equal to the purchase
price. Holders whose Securities are purchased only in part will be issued new
Securities equal in principal amount to the unpurchased portion of the
Securities surrendered.

The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to this
Section. To the extent that the provisions of any securities laws or regulations

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conflict with provisions of this Section, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under this Section by virtue thereof.

SECTION 3.9 Compliance Certificate.

The Company shall, within 120 days after the close of each
fiscal year following the issuance of the Securities, file with the Trustee an
Officer's Certificate, provided that one Officer executing the same shall be the
principal executive officer, the principal financial officer or the principal
accounting officer of the Company, covering the period from the date of issuance
of the Securities to the end of the fiscal year in which the Securities were
issued, in the case of the first such certificate, and covering the preceding
fiscal year in the case of each subsequent certificate, and stating whether or
not, to the knowledge of each such executing Officer, the Company has complied
with and performed and fulfilled all covenants on its part contained in this
Indenture and is not in default in the performance or observance of any of the
terms or provisions contained in this Indenture, and, if any such signer has
obtained knowledge of any default by the Company in the performance, observance
or fulfillment of any such covenant, term or provision specifying each such
default and the nature thereof. For the purpose of this Section 3.9, compliance
shall be determined without regard to any grace period or requirement of notice
provided pursuant to the terms of this Indenture.

SECTION 3.10 SEC Reports.

The Company shall, to the extent required by TIA Section
314(a), file with the Trustee, within 15 days after the filing with the SEC,
copies of the annual reports and of the information, documents and other reports
(or copies of such portions of any of the foregoing as the SEC may by rules and
regulations prescribe) which the Company is required to file with the SEC
pursuant to Section 13 or 15(d) of the Exchange Act. In the event the Company is
at any time no longer subject to the reporting requirements of Section 13 or
15(d) of the Exchange Act, it shall, for so long as the Securities remain
outstanding, file with the Trustee and the SEC and mail to each Securityholder
at such Securityholder's registered address, within 15 days after the Company
would have been required to file such documents with the SEC, copies of the
annual reports and of the information, documents and other reports which the
Company would have been required to file with the SEC if the Company had
continued to be subject to such

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Sections 13 or 15(d). The Company also shall comply with the other provisions of
TIA Section 314(a).

SECTION 3.11 Transactions with Affiliates.

The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, enter into, permit to exist, renew or
extend any transaction or series of transactions (including, without limitation,
the sale, purchase, exchange or lease of any assets or property or the rendering
of any services) with any Affiliate of the Company unless (i) the terms of such
transaction or series of transactions are (A) no less favorable to the Company
or such Restricted Subsidiary, as the case may be, than would be obtainable in a
comparable transaction or series of related transactions in arm's-length
dealings with an unrelated third party and (B) set forth in writing, if such
transaction or series of transactions involve aggregate payments or
consideration in excess of $1,000,000, and (ii) with respect to a transaction or
series of transactions involving the sale, purchase, lease or exchange of
property or assets having a value in excess of $5,000,000, such transaction or
series of transactions has been approved by a majority of the disinterested
members of the Board of Directors or, if there are no disinterested members of
the Board of Directors, the Board of Directors of the Company shall have
received a written opinion of a nationally recognized investment banking firm
stating that such transaction or series of transactions is fair to the Company
or such Restricted Subsidiary from a financial point of view. The foregoing
provisions do not prohibit (i) the payment of reasonable fees to directors of
the Company and its subsidiaries who are not employees of the Company or its
subsidiaries; (ii) any transaction between the Company and a Wholly Owned
Subsidiary or between Wholly Owned Subsidiaries otherwise permitted by the terms
of the Indenture; (iii) the payment of any Restricted Payment which is expressly
permitted to be paid pursuant to Section 3.3(b); (iv) any issuance of securities
or other reasonable payments, awards or grants, in cash or otherwise, pursuant
to, or the funding of, employment arrangements approved by the Board of
Directors; (v) the grant of stock options or similar rights to employees and
directors of the Company pursuant to plans approved by the Board of Directors;
(vi) loans or advances to employees in the ordinary course of business; (vii)
any repurchase, redemption or other retirement of Capital Stock of the Company
held by employees of the Company or any of its Subsidiaries upon death,
disability or termination of employment at a price not in excess of the fair
market value thereof approved by the Board of Directors; (viii) any transaction
between or among the Company and any Subsidiary in the ordinary course of
business and consistent with past practices of the Company and its Subsidiaries;

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(ix) payments pursuant to Existing Agreements and payments of principal,
interest and commitment fees under the Bank Credit Agreement; and (x) any
agreement to do any of the foregoing. Any transaction which has been determined,
in the written opinion of an independent nationally recognized investment
banking firm, to be fair, from a financial point of view, to the Company or the
applicable Restricted Subsidiary shall be deemed to be in compliance with this
Section.

SECTION 3.12 Sales of Assets.

(a) Neither the Company nor any Restricted Subsidiary shall
consummate any Asset Sale unless (i) the Company or such Restricted Subsidiary
receives consideration at the time of such Asset Sale at least equal to the fair
market value, as determined in good faith by the Board of Directors, of the
shares or assets subject to such Asset Sale, (ii) at least 60% of the
consideration thereof received by the Company or such Restricted Subsidiary is
in the form of cash or cash equivalents which are promptly converted into cash
by the Person receiving such payment and (iii) an amount equal to 100% of the
Net Available Cash is applied by the Company (or such Subsidiary, as the case
may be) as set forth herein. The Company shall not permit any Unrestricted
Subsidiary to make any Asset Sale unless such Unrestricted Subsidiary receives
consideration at the time of such Asset Sale at least equal to the fair market
value of the shares or assets so disposed of as determined in good faith by the
Board of Directors.

(b) Within three hundred sixty-five (365) days (such 365 days
being the "Application Period") following the consummation of an Asset Sale, the
Company or such Restricted Subsidiary shall apply the Net Available Cash from
such Asset Sale as follows: (i) first, to the extent the Company or such
Restricted Subsidiary elects, to reinvest in Additional Assets (including by
means of an investment in Additional Assets by a Restricted Subsidiary with Net
Available Cash received by the Company or another Restricted Subsidiary); (ii)
second, to the extent of the balance of such Net Available Cash after
application in accordance with clause (i), and to the extent the Company or such
Restricted Subsidiary elects (or is required by the terms of any Senior
Indebtedness or any Indebtedness of such Restricted Subsidiary), to prepay,
repay or purchase Senior Indebtedness (other than Securities) or Indebtedness
(other than any Preferred Stock) of a Restricted Subsidiary (in each case other
than Indebtedness owed to the Company or an Affiliate of the Company); (iii)
third, to the extent of the balance of such Net Available Cash after
application in accordance with clauses (i) and (ii), and to the extent the
Company or such Restricted Subsidiary elects, to purchase Securities; and (iv)
fourth, to the extent of the balance of such Net

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Available Cash after application in accordance with clauses (i), (ii) and (iii),
to make an offer to purchase Securities pursuant to and subject to the
conditions of Section 3.12(c); provided, however, that in
connection with any prepayment, repayment or purchase of Indebtedness pursuant
to clause (ii), (iii) or (iv) above, the Company or such Restricted Subsidiary
shall retire such Indebtedness and cause the related loan commitment (if any) to
be permanently reduced in an amount equal to the principal amount so prepaid,
repaid or purchased. To the extent that any Net Available Cash from any Asset
Sale remains after the application of such Net Available Cash in accordance with
this paragraph, the Company or such Restricted Subsidiary may utilize such
remaining Net Available Cash in any manner not otherwise prohibited by the
Indenture.

To the extent that any or all of the Net Available Cash of any
Foreign Asset Sale is prohibited or delayed by applicable local law from being
repatriated to the United States, the portion of such Net Available Cash so
affected shall not be required to be applied at the time provided above, but may
be retained by the applicable Restricted Subsidiary so long, but only so long,
as the applicable local law will not permit repatriation to the United States
(the Company hereby agreeing to promptly take or cause the applicable Restricted
Subsidiary to promptly take all actions required by the applicable local law to
permit such repatriation). Once such repatriation of any of such affected Net
Available Cash is permitted under the applicable local law, such repatriation
shall be immediately effected and such repatriated Net Available Cash will be
applied in the manner set forth in this Section as if such Asset Sale had
occurred on the date of such repatriation.

Notwithstanding the foregoing, to the extent that the Board of
Directors determines, in good faith, that repatriation of any or all of the Net
Available Cash of any Foreign Asset Sale would have a material adverse tax
consequence to the Company, the Net Available Cash so affected may be retained
outside of the United States by the applicable Restricted Subsidiary for so long
as such material adverse tax consequence would continue.

Notwithstanding the foregoing, this Section shall not apply to,
or prevent any sale of assets, property, or Capital Stock of Subsidiaries to the
extent that the fair market value (as determined in good faith by the Board of
Directors) of such asset, property or Capital Stock, together with the fair
market value of all other assets, property, or Capital Stock of Subsidiaries
sold, transferred or otherwise disposed of in Asset Sales during the twelve
month period preceding the date of such sale, does not exceed 5% of Consolidated
Net Tangible Assets as

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<PAGE> 65
determined as of the end of the most recent fiscal quarter for which financial
statements are available, (it being understood that this provision shall only
apply with respect to the fair market value of such asset, property or Capital
Stock in excess of 5% of consolidated Net Tangible Assets), and no violation of
this provision shall be deemed to have occurred as a consequence thereof.

In the event of the transfer of substantially all (but not all)
of the property and assets of the Company as an entirety to a Person in a
transaction permitted under Article IV, the Successor Corporation shall be
deemed to have sold the properties and assets of the Company not so transferred
for purposes of this Section 3.12, and shall comply with the provisions of this
Section 3.12 with respect to such deemed sale as if it were an Asset Sale.

(c) Subject to the last sentence of this paragraph, in the
event of an Asset Sale that requires the purchase of Securities pursuant to
clause (iii) of the first paragraph of Section 3.12(b), the Company will be
required to purchase Securities tendered pursuant to an offer by the Company for
the Securities (the "Asset Sale Offer") at a purchase price of not less than
their principal amount plus accrued interest to the Asset Sale Purchase Date in
accordance with the procedures (including proration in the event of
oversubscription) set forth in Section 3.12(d). If the aggregate purchase price
of Securities tendered pursuant to the Asset Sale Offer is less than the Net
Available Cash allotted to the purchase of the Securities, the Company shall
apply the remaining Net Available Cash in accordance with the last sentence of
the first paragraph of Section 3.12(b). The Company shall not be required to
make an Asset Sale Offer for Securities pursuant to this Section if the Net
Available Cash available therefor (after application of the proceeds as provided
in Section 3.12(b)(i) and (ii)) is less than $1,000,000 for any particular Asset
Sale (which lesser amounts shall not be carried forward for purposes of
determining whether an Asset Sale Offer is required with respect to the Net
Available Cash from any subsequent Asset Sale).

(d) (1) Promptly, and in any event prior to the 360th day after
the later of the date of each Asset Sale as to which the Company must make an
Asset Sale Offer or the receipt of Net Available Cash therefrom, the Company
shall be obligated to deliver to the Trustee and send, by first-class mail to
each Holder, a written notice stating that the Holder may elect to have his
Securities purchased by the Company either in whole or in part (subject to
proration as hereinafter described in the event the Asset Sale Offer is
oversubscribed) in integral multiples of $1,000 of principal amount, at the
applicable purchase price. The notice shall specify a purchase date not less
than 30 days, nor more than 60 days, after the

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date of such notice (the "Asset Sale Purchase Date") and shall contain the
information required in a notice for a Change of Control Offer, to the extent
applicable.

(2) Not later than the date upon which written notice of an
Asset Sale Offer is delivered to the Trustee as provided below, the Company
shall deliver to the Trustee an Officers' Certificate as to (i) the amount of
the Asset Sale Offer (the "Asset Sale Offer Amount"), (ii) the allocation of the
Net Available Cash from the Asset Sales pursuant to which such Asset Sale Offer
is being made and (iii) the compliance of such allocation with the provisions of
Section 3.12(a). On such date, the Company shall also deposit with a Paying
Agent (or, if the Company is acting as its own Paying Agent, segregate and hold
in trust) funds in an amount equal to the Asset Sale Offer Amount to be held for
payment in accordance with the provisions of this Section. Upon the expiration
of the period for which the Asset Sale Offer remains open (the "Offer Period"),
the Company shall deliver, or cause to be delivered, to the Trustee the
Securities or portions thereof which have been properly tendered to and are to
be accepted by the Company. Paying Agent shall promptly, and in any event within
one (1) Business Day following the Asset Sale Purchase Date, mail or deliver
payment to each tendering Holder in the amount of the purchase price. In the
event that the aggregate purchase price of the Securities delivered, or caused
to be delivered, by the Company to the Trustee is less than the Asset Sale Offer
Amount, the Paying Agent shall deliver the excess to the Company immediately
after the expiration of the Offer Period and the delivery to the Trustee of the
Securities, or portions thereof that have been properly tendered to and are to
be accepted for payment by the Company.

(3) Holders electing to have a Security purchased will be
required to surrender the Security, with the form entitled "Option of Holder to
Elect Purchase" on the reverse of the Security duly completed, to the Company or
the Paying Agent, as specified in, and at the address specified in, the notice
at least ten Business Days prior to the Asset Sale Purchase Date. Holders will
be entitled to withdraw their election if the Trustee or the Paying Agent
receives, not later than three Business Days prior to the Asset Sale Purchase
Date, a telegram, telex, facsimile transmission or letter setting forth the name
of the Holder, the principal amount of the Security which was delivered for
purchase by the Holder and a statement that such Holder is withdrawing his
election to have such Security purchased. If at the expiration of the Offer
Period the aggregate principal amount of Securities surrendered by Holders
exceeds the Asset Sale Offer Amount, the Company shall select the Securities to
be purchased on a pro rata basis (with such

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adjustments as may be deemed appropriate by the Company so that only Securities
in denominations of $1,000, or integral multiples thereof, shall be purchased)
and shall notify the Trustee of its selection in a writing signed by two
Officers. Holders whose Securities are purchased only in part will be issued new
Securities equal in principal amount to the unpurchased portion of the
Securities surrendered.

(4) At the time the Company delivers Securities to the Trustee
which are to be accepted for purchase, the Company will also deliver an
Officers' Certificate stating that such Securities are to be accepted by the
Company pursuant to and in accordance with the terms of this Section. A Security
shall be deemed to have been accepted for purchase at the time the Paying Agent,
directly or through an agent, mails or delivers payment therefor to the
surrendering Holder.

(e) The Company shall comply, to the extent applicable, with
the requirements of Section 14(e) of the Exchange Act and any other securities
laws or regulations in connection with the repurchase of Securities pursuant to
this Section. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Section, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under this Section by virtue thereof.

SECTION 3.13 Corporate Existence.

Except as permitted under Article IV, the Company shall do or
cause to be done all things necessary to preserve and keep in full force and
effect its corporate existence and the corporate existence of each Restricted
Subsidiary in accordance with the respective organizational documents of the
Company and of each Restricted Subsidiary and the rights (charter and
statutory), licenses and franchises of the Company and the Restricted
Subsidiaries necessary or appropriate to carry out their businesses; provided,
however, that the Company shall not be required to preserve any such right,
license or franchise, or the corporate existence of any Restricted Subsidiary,
if the preservation thereof is no longer desirable in the conduct of the
business of the Company and the Restricted Subsidiaries taken as a whole; and
provided, further, that any Restricted Subsidiary may consolidate with, merge
into, or sell, convey, transfer, lease or otherwise dispose of all or part of
its property and assets to the Company or any Wholly Owned Subsidiary to the
extent otherwise permitted under this Indenture.

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SECTION 3.14 Payment of Taxes and Other Claims.

The Company shall pay or discharge, or cause to be paid or
discharged, before any material penalty accrues thereon all material taxes,
assessments and governmental charges levied or imposed upon the Company or any
Restricted Subsidiary or upon the income, profits or property of the Company or
any Restricted Subsidiary; provided, however, that the Company shall not be
required to pay or discharge, or cause to be paid or discharged, any such tax,
assessment, charge or claim the amount, applicability or validity of which is
being contested in good faith by appropriate proceedings and for which adequate
reserves, if the same shall be required in accordance with GAAP, have been made.

SECTION 3.15 Notice of Defaults and Other Events.

In the event that any Indebtedness of the Company or any
Significant Subsidiary having an outstanding principal amount of $1,000,000 or
more individually or $2,500,000 or more in the aggregate has been or could be
declared due and payable before its maturity because of the occurrence of any
event of default under such Indebtedness (including any Default under this
Indenture), the Company, promptly after it becomes aware thereof, will give
written notice thereof to the Trustee.

SECTION 3.16 Maintenance of Properties and Insurance.

The Company shall cause all properties used or useful in the
conduct of its business or the business of each Restricted Subsidiary and
material to the Company and the Restricted Subsidiaries taken as a whole to be
maintained and kept in normal condition, repair and working order and supplied
with all necessary equipment; provided, however, that nothing in this Section
3.16 shall prevent the Company or any Restricted Subsidiary from discontinuing
the use, operation or maintenance of any of such properties or disposing of any
of them, if such discontinuance or disposal is, in the judgment of an Officer
(or other employee of the Company or any Restricted Subsidiary) of the Company
or such Restricted Subsidiary having managerial responsibility for any such
property, appropriate.

The Company shall provide or cause to be provided, for itself
and the Restricted Subsidiaries, insurance (including appropriate
self-insurance) against loss or damage of the kinds customarily insured against
by corporations

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similarly situated and owning like properties, including, but not limited to,
product liability insurance and public liability insurance with reputable
insurers or with the government of the United States of America, or an agency or
instrumentality thereof, of such kinds, and in such amounts, with such
deductibles and by such methods as the Company in good faith shall determine to
be reasonable and appropriate in the circumstances.

SECTION 3.17 Limitation on Issuance of Capital Stock and Incurrence of
Indebtedness of Restricted Subsidiaries.

The Company shall not permit any Restricted Subsidiary,
directly or indirectly, to issue or sell, and shall not permit any Person other
than the Company or a Wholly Owned Subsidiary to own (except to the extent that
any such Person may own on the Issue Date), any shares of such Restricted
Subsidiary's Capital Stock (including options, warrants or other rights to
purchase shares of Capital Stock) except, to the extent otherwise permitted by
the Indenture, (i) to the Company or another Restricted Subsidiary that is a
Wholly Owned Subsidiary of the Company, or (ii) if, immediately after giving
effect to such issuance and sale, such Restricted Subsidiary would no longer
constitute a Restricted Subsidiary for purposes of the Indenture; provided,
however, that a Restricted Subsidiary that has an interest in a Facility may
sell shares of Non-Convertible Stock that is not Preferred Stock if, after
giving effect to such sale, the Company or a Wholly Owned Subsidiary continues
to hold at least a majority of each class of Capital Stock of such Restricted
Subsidiary. The Company shall not permit any Restricted Subsidiary, directly or
indirectly, to Incur Indebtedness other than pursuant to Section 3.4(b).

SECTION 3.18 Limitation on Changes in the Nature of the Business.

The Company and its Subsidiaries shall engage only in the
business of acquiring, constructing, managing, developing, improving, owning and
operating Facilities, as well as any other activities reasonably related to the
foregoing activities (including acquiring and holding reserves), including but
not limited to investing in Facilities; provided that up to 10% of the Company's
Consolidated total assets may be used in Unrelated Businesses without
constituting a violation of this Section. In addition, the Company will, and
will cause its Subsidiaries, to conduct their respective businesses in a manner
so as to maintain the exemption of the Company and its Subsidiaries from
treatment as a public utility holding company under PUHCA or an electric utility
or public utility under any federal, state or local law; provided,
however, to the extent that any

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such law is amended following the Issue Date in such a manner that would (absent
application of this proviso) make compliance with this Section 3.18 result in a
material adverse effect on the Company's results of operations or financial
condition, then the Company shall not be required to comply with this Section
3.18, but only to the extent of actions or failures to act that would (absent
application of this proviso) constitute violations of this Covenant solely as a
result of such amendment.

SECTION 3.19 Limitation on Subsidiary Investments.

The Company will not permit any Subsidiary with an interest in
a Facility to make any investment in or merge with any other person with an
interest in a power generation facility or, except in connection with the
acquisition of Related Assets by such Subsidiary, in an Unrelated Business.

ARTICLE IV

CONSOLIDATION, MERGER AND SALE

SECTION 4.1 Merger and Consolidation of Company.

The Company shall not in a single transaction or through a series
of related transactions consolidate with or merge with or into any other
corporation or sell, assign, convey, transfer or lease or otherwise dispose of
all or substantially all of its properties and assets as an entirety to any
Person or group of affiliated Persons, unless:

(i) either (A) the Company shall be the continuing
Person, or (B) the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or to which the
properties and assets of the Company as an entirety are transferred
(the "Successor Corporation") shall be a corporation organized and
existing under the laws of the United States or any State thereof or
the District of Columbia and shall expressly assume, by an indenture
supplemental hereto, executed and delivered to the Trustee, in form and
substance reasonably satisfactory to the Trustee, all the obligations
of the Company under this Indenture and the Securities;

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(ii) immediately before and immediately after giving
effect to such transaction on a pro forma basis (and treating any
Indebtedness which becomes an obligation of the Company (or the
Successor Corporation if the Company is not the continuing obligor
under this Indenture) or any Restricted Subsidiary as a result of such
transaction as having been Incurred by such Person at the time of such
transaction), no Default shall have occurred and be continuing;

(iii) the Company shall have delivered, or caused to
be delivered, to the Trustee an Officers' Certificate and, as to legal
matters, an Opinion of Counsel, each in form and substance reasonably
satisfactory to the Trustee, each stating that such consolidation,
merger or transfer and such supplemental indenture comply with this
Indenture and that all conditions precedent herein provided for
relating to such transaction have been complied with;

(iv) immediately after giving effect to such
transaction on a pro forma basis (and treating any Indebtedness which
becomes an obligation of the Company (or the Successor Corporation if
the Company is not the continuing obligor under this Indenture) or a
Restricted Subsidiary in connection with or as a result of such
transaction as having been Incurred by such Person at the time of such
transaction), the Company (or the Successor Corporation if the Company
is not the continuing obligor under this Indenture) shall have
Consolidated Net Worth in an amount which is not less than the
Consolidated Net Worth of the Company immediately prior to such
transaction; and

(v) immediately after giving effect to such
transaction on a ness which becomes an obligation of the Company (or
the Successor Corporation if the Company is not the continuing obligor
under the Indenture) or a Restricted Subsidiary in connection with or
as a result of such transaction as having been Incurred by such Person
at the time of such transaction), the Consolidated Coverage Ratio of
the Company (or the Successor Corporation if the Company is not the
continuing obligor under the Indenture) is at least 1.10:1, or, if
less, equal to the Consolidated Coverage Ratio of the Company
immediately prior to such transaction; provided that, if the
Consolidated Coverage Ratio of the Company before giving effect to such
transaction is within the range set forth in column (A) below, then the
pro forma Consolidated Coverage Ratio of the Company (or the Successor
Corporation if the

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Company is not the continuing obligor under the Indenture) shall be at
least equal to the lesser of (1) the ratio determined by multiplying
the percentage set forth in column (B) below by the Consolidated
Coverage Ratio of the Company prior to such transaction and (2) the
ratio set forth in column (C) below:

<TABLE>
<CAPTION>
(A) (B) (C)

Notwithstanding the foregoing paragraphs (ii), (iv) and (v), any
Restricted Subsidiary (other than a Subsidiary having an interest in a Facility)
may consolidate with, merge into or transfer all or part of its properties and
assets to the Company or any Wholly Owned Subsidiary or Wholly Owned
Subsidiaries (other than a Subsidiary or Subsidiaries which have an interest in
a Facility) and no violation of this Section shall be deemed to have occurred as
a consequence thereof, as long as the requirements of paragraphs (i) and (iii)
are satisfied in connection therewith.

SECTION 4.2 Successor Substituted.

(a) Upon any such consolidation or merger, or any conveyance,
transfer, or disposition of all or substantially all of the properties or assets
of the Company in accordance with Section 4.1, but not in the case of a lease,
the Successor Corporation shall succeed to and be substituted for the Company
under this Indenture and the Securities, and the Company shall thereupon be
released from all obligations hereunder and under the Securities and the
Company, as the predecessor corporation, may thereupon or at any time thereafter
be dissolved, wound up or liquidated. The Successor Corporation thereupon may
cause to be signed, and may issue either in its own name or in the name of the
Company, all or any of the Securities issuable hereunder which theretofore shall
not have been signed by the Company and delivered to the Trustee; and, upon the
order of the Successor Corporation instead of the Company and subject to all the
terms, conditions and limitations prescribed in this Indenture, the Trustee
shall authenticate and shall deliver any Securities which the Successor
Corporation thereafter shall cause to be signed and delivered to the Trustee for
that purpose. All the

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Securities so issued shall in all respects have the same legal rank and benefit
under this Indenture as the Securities theretofore or thereafter issued in
accordance with the terms of this Indenture as though all such Securities had
been issued at the date of the execution hereof.

(b) In the case of any consolidation, merger or transfer
described in Section 4.2(a) above, such changes in form (but not in substance)
may be made in the Securities thereafter to be issued as may be appropriate.

ARTICLE V

DEFAULTS AND REMEDIES

SECTION 5.1 Events of Default.

An "Event of Default" means any of the following events:

(a) default in the payment of interest on any Security
when the same becomes due and payable, and such default continues for a
period of 30 days;

(b) default in the payment of the principal of any
Security when the same becomes due and payable at maturity or otherwise
or a failure to redeem or purchase Securities when required pursuant to
this Indenture or the Securities;

(c) default in performance of any other covenants or
agreements in the Securities or this Indenture and the default
continues for 30 days after the date on which written notice of such
default is given to the Company by the Trustee or to the Company and
the Trustee by Holders of at least 25% in principal amount of the
Securities then outstanding hereunder;

(d) there shall have occurred either (i) a default by
the Company or any Subsidiary under any instrument or instruments under
which there is or may be secured or evidenced any Indebtedness of the
Company or any Subsidiary of the Company (other than the Securities)
having an outstanding principal amount of $2,000,000 (or its foreign

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currency equivalent) or more individually or $5,000,000 (or its foreign
currency equivalent) or more in the aggregate that has caused the
holders thereof to declare such Indebtedness to be due and payable
prior to its Stated Maturity or (ii) a default by the Company or any
Subsidiary in the payment when due of any portion of the principal
under any such instrument, and such unpaid portion exceeds $2,000,000
(or its foreign currency equivalent) individually or $5,000,000 (or its
foreign currency equivalent) in the aggregate and is not paid, or such
default is not cured or waived, within any grace period applicable
thereto, unless such Indebtedness is discharged within 20 days of the
Company or a Restricted Subsidiary becoming aware of such default;
provided, however, that the foregoing shall not apply
to any default on Non-Recourse Indebtedness;

(e) any final judgment or order (not covered by
insurance) for the payment of money shall be rendered against the
Company or any Significant Subsidiary in an amount in excess of
$2,000,000 (or its foreign currency equivalent) individually or
$5,000,000 (or its foreign currency equivalent) in the aggregate for
all such final judgments or orders against all such Persons (treating
any deductibles, self-insurance or retention as not so covered) and
shall not be discharged, and there shall be any period of 30
consecutive days following entry of the final judgment or order in
excess of $2,000,000 (or its foreign currency equivalent) individually
or that causes the aggregate amount for all such final judgments or
orders outstanding against all such Persons to exceed $5,000,000 (or
its foreign currency equivalent) during which a stay of enforcement of
such final judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect;

(f) the Company or any Significant Subsidiary pursuant
to or within the meaning of any Bankruptcy Law:

(i) commences a voluntary case,

(ii) consents to the entry of an order for relief
against it in an involuntary case,

(iii) consents to the appointment of a Custodian of it
or for all or substantially all of its property,

(iv) makes a general assignment for the benefit of its
creditors, or

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(v) admits in writing its inability to generally pay
its debts as such debts become due;

or takes any comparable action under any foreign laws relating to
insolvency;

(g) a court of competent jurisdiction enters an order
or decree under any Bankruptcy Law that:

(i) is for relief against the Company or any
Significant Subsidiary in an involuntary case,

(ii) appoints a Custodian of the Company or any
Significant Subsidiary or for all or substantially all
of its property, or

(iii) orders the winding up or liquidation of the
Company or any Significant Subsidiary;

or any similar relief is granted under any foreign laws; and the order or decree
remains unstayed and in effect for 60 days.

The term "Bankruptcy Law" means Title 11 of the United States
Code or any similar Federal or State law for the relief of debtors. The term
"Custodian" means any receiver, trustee, assignee, liquidator or similar
official under any Bankruptcy Law.

Any notice of Default given by the Trustee or Securityholders
under this Section must specify the Default, demand that it be remedied and
state that the notice is a "Notice of Default."

The Company shall deliver to the Trustee, within 30 days after
the occurrence thereof, written notice of any event which with the giving of
notice or the lapse of time or both would become an Event of Default under
clause (c), (d), (e) or (g) hereof.

Subject to the provisions of Section 6.1 and 6.2, the Trustee
shall not be charged with knowledge of any Event of Default unless written
notice thereof shall have been given to the Trustee by the Company, the Paying
Agent, any Holder or an agent of any Holder.

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SECTION 5.2 Acceleration.

If an Event of Default (other than an Event of Default
specified in clause (f) and (g) of Section 5.1 with respect to the Company)
occurs and is continuing, the Trustee by notice to the Company, or the Holders
of at least 25% in principal amount of the Securities by notice to the Company
and the Trustee, may declare the principal of and accrued and unpaid interest on
all the Securities to be due and payable. Upon such declaration the principal
and interest shall be due and payable immediately. If an Event of Default
specified in clause (f) or (g) of Section 5.1 with respect to the Company
occurs, the principal of and interest on all the Securities shall ipso facto
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any Securityholders. The Holders of a majority in
principal amount of the Securities by notice to the Trustee may rescind an
acceleration and its consequences if the rescission would not conflict with any
judgment or decree and if all existing Events of Default have been cured or
waived except nonpayment of principal or interest that has become due solely
because of the acceleration. No such rescission shall affect any subsequent or
other Default or Event of Default or impair any consequent right.

SECTION 5.3 Other Remedies.

If an Event of Default occurs and is continuing, the Trustee
may pursue any available remedy to collect the payment of principal or interest
on the Securities or to enforce the performance of any provision of the
Securities or this Indenture.

The Trustee may maintain a proceeding even if it does not
possess any of the Securities or does not produce any of them in the proceeding.
A delay or omission by the Trustee or any Securityholder in exercising any right
or remedy accruing upon an Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in the Event of Default. All remedies
are cumulative to the extent permitted by law.

SECTION 5.4 Waiver of Past Defaults.

The Holders of a majority in principal amount of the
Securities by notice to the Trustee may waive an existing Default and its
consequences except (a) a Default in the payment of the principal of or interest
on any Security or (b) a Default in respect of a provision that under Section
8.2 cannot be amended

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without the consent of each Securityholder affected. When a Default is waived,
it is deemed cured, but no such waiver shall extend to any subsequent or other
Default or Event of Default or impair any consequent right.

SECTION 5.5 Control by Majority.

The Holders of a majority in principal amount of the
Securities 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 it. However, the Trustee may refuse to follow any direction that
conflicts with law or this Indenture, or, subject to Section 6.1, that the
Trustee determines is unduly prejudicial to the rights of other Securityholders,
or would involve the Trustee in personal liability; provided, however, that the
Trustee may take any other action deemed proper by the Trustee that is not
inconsistent with such direction. Prior to taking any action hereunder, the
Trustee shall be entitled to indemnification reasonably satisfactory to it
against all risk, losses and expenses caused by taking or not taking such
action. Subject to Section 6.1, the Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this Indenture at the
request or direction of the Securityholders pursuant to this Indenture, unless
such Securityholders shall have provided to the Trustee security or indemnity
reasonably satisfactory to it against the costs, expenses and liabilities which
might be incurred in compliance with such request or direction.

SECTION 5.6 Limitation on Suits.

A Securityholder may pursue a remedy with respect to this
Indenture or the Securities only if:

(a) the Holder gives to the Trustee written notice of
a continuing Event of Default;

(b) the Holders of at least 25% in principal amount
of the Securities make a written request to the Trustee to pursue the
remedy;

(c) such Holder or Holders offer to the Trustee
security reasonably satisfactory to it or indemnity against any loss,
liability or expense;

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(d) the Trustee does not comply with the request
within 60 days after receipt of the request and the offer of security
or indemnity; and

(e) the Holders of a majority in principal amount of
the Securities do not give the Trustee a direction inconsistent with
the request during such 60-day period.

A Securityholder may not use this Indenture to prejudice the
rights of another Securityholder or to obtain a preference or priority over
another Securityholder.

SECTION 5.7 Rights of Holders To Receive Payment.

Notwithstanding any other provision of this Indenture, the
right of any Holder of a Security to receive payment of principal and interest
on the Security, on or after the respective due dates expressed in the Security,
or to bring suit for the enforcement of any such payment on or after such
respective dates, shall not be impaired or affected without the consent of the
Holder.

SECTION 5.8 Collection Suit by Trustee.

If an Event of Default specified in Section 5.1(a) or (b)
occurs and is continuing, the Trustee may recover judgment in its own name and
as trustee of an express trust against the Company for the whole amount of
principal and interest remaining unpaid (together with interest on such unpaid
interest to the extent lawful) and the amounts provided for in Section 6.7.

SECTION 5.9 Trustee May File Proofs of Claim.

The Trustee may file such proofs of claim and other papers or
documents and take such other actions including participating as a member or
otherwise in any committees of creditors appointed in the matter as may be
necessary or advisable in order to have the claims of the Trustee (including any
claim for the amounts provided in Section 6.7) and the Securityholders allowed
in any judicial proceedings relative to the Company, its creditors or its
property and, unless prohibited by law or applicable regulations, may vote on
behalf of the Holders in any election of a trustee in bankruptcy or other Person
performing similar functions, and any Custodian in any such judicial proceeding
is hereby authorized by each Holder to make payments to the Trustee and, in the
event that

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the Trustee shall consent to the making of such payments directly to the
Holders, to pay to the Trustee any amount due it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and its counsel, and any other amounts due the Trustee under Section 6.7. To the
extent that the payment of any such amount due to the Trustee under Section 6.7
out of the estate in any such proceeding shall be denied for any reason, payment
of the same shall be secured by a Lien on, and shall be paid out of, any and all
distributions, dividends, money, securities and other properties which the
Holders of the Securities may be entitled to receive in such proceeding whether
in liquidation or under any plan of reorganization or arrangement or otherwise.

SECTION 5.10 Priorities.

If the Trustee collects any money pursuant to this Article, it
shall pay out the money in the following order:

First: to the Trustee for amounts due under Section 6.7;

Second: to Securityholders for amounts due and unpaid on the
Securities for principal, premium, if any, and interest, ratably,
without preference or priority of any kind, according to the amounts
due and payable on the Securities for principal and interest,
respectively; and

Third: to the Company.

The Trustee may fix a record date and payment date for any
payment to Securityholders pursuant to this Section. At least 15 days before
such record date, the Company shall give written notice to each Securityholder
and the Trustee of the record date, the payment date and amount to be paid.

SECTION 5.11 Undertaking for Costs.

In any suit for the enforcement of any right or remedy under
this Indenture or in any suit against the Trustee for any action taken or
omitted by it as Trustee, a court in its discretion may require the filing by
any party litigant in the suit of an undertaking to pay the costs of the suit,
and the court in its discretion may assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant. This Section does not apply to a

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suit by the Trustee, a suit by a Holder pursuant to Section 5.7, or a suit by
Holders of more than 10% in principal amount of the Securities.

SECTION 5.12 Waiver of Stay or Extension Laws.

The Company shall not at any time insist upon, or plead, or in
any manner whatsoever claim or take the benefit or advantage of, any stay or
extension law wherever enacted, now or at any time hereafter in force, which may
affect the covenants or the performance of this Indenture; and the Company
hereby expressly waives all benefit or advantage of any such law, and shall not
hinder, delay or impede the execution of any power herein granted to the
Trustee, but shall suffer and permit the execution of every such power as though
no such law had been enacted.

ARTICLE VI

TRUSTEE

SECTION 6.1 Duties of Trustee.

(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent Person would exercise or use under the circumstances in the conduct of
his own affairs.

(b) Except during the continuance of an Event of Default:

(i) The Trustee need perform only those duties that
are specifically set forth in this Indenture and no others and no
implied covenants or obligations shall be read into this Indenture
against the Trustee.

(ii) In the absence of bad faith on its part, the
Trustee may conclusively rely, as to the truth of the statements and
the correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture. However, the Trustee shall examine the certificates and
opinions to determine whether or not they conform to the requirements
of this Indenture.

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(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:

(i) This paragraph does not limit the effect of
paragraph (b) of this Section.

(ii) The Trustee shall not be liable for any error of
judgment made in good faith by a Trust Officer, unless it is proved
that the Trustee was negligent in ascertaining the pertinent facts.

(iii) The Trustee shall not be liable with respect to
any action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 5.2, 5.4 or 5.5.

(iv) No provision of this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur any
financial liability in the performance of any of its duties hereunder,
or in the exercise of any of its rights or powers, unless it receives
indemnity satisfactory to it against any risk, loss, liability or
expense.

(d) Every provision of this Indenture that in any way relates
to the Trustee is subject to paragraphs (a), (b) and (c) of this Section.

(e) The Trustee, in its capacity as Trustee and Registrar and
Paying Agent, shall not be liable to the Company, the Securityholders or any
other Person for interest on any money received by it, including, but not
limited to, money with respect to principal of or interest on the Securities,
except as the Trustee may agree with the Company.

(f) Money held in trust by the Trustee need not be segregated
from other funds except to the extent required by law.

SECTION 6.2 Rights of Trustee.

(a) The Trustee may rely on any document reasonably believed
by it to be genuine and to have been signed or presented by the proper Person.
The Trustee need not investigate any fact or matter stated in the document.

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(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate, an Opinion of Counsel or both. The Trustee
shall not be liable for any action it takes or omits to take in good faith in
reliance on any such Officers' Certificate or Opinion of Counsel.

(c) The Trustee may act through agents and shall not be
responsible for the misconduct or negligence of any agent appointed with due
care.

(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith which it believes to be authorized or within its
rights or powers provided, however, that the Trustee's conduct does not
constitute wilful misconduct, negligence or bad faith.

(e) The Trustee may consult with counsel, and the advice or
opinion of such counsel as to matters of law shall be full and complete
authorization and protection from liability in respect of any action taken,
omitted or suffered by it hereunder in good faith and in accordance with the
advice of such counsel.

(f) The Trustee shall not be obligated to make any
investigation into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture or any other paper or document.

SECTION 6.3 Individual Rights of Trustee.

The Trustee in its individual or any other capacity may become
the owner or pledgee of Securities and may otherwise deal with the Company or an
Affiliate with the same rights it would have if it were not Trustee. Any Agent
may do the same with like rights. However, the Trustee is subject to Sections
6.10 and 6.11.

SECTION 6.4 Trustee's Disclaimer.

The Trustee shall not be responsible for and makes no
representation as to the validity or adequacy of this Indenture or the
Securities, it shall not be accountable for the Company's use of the proceeds
from the Securities, and it shall not be responsible for any statement in the
Securities other than its authentication. The Trustee shall have no duty to
ascertain or inquire as to the performance of the Company's covenants in Article
III hereof.

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SECTION 6.5 Notice of Defaults.

If a Default or an Event of Default occurs and is continuing
and if it is known to a Trust Officer of the Trustee, the Trustee shall mail to
Securityholders a notice of the Default or Event of Default within 90 days after
a Trust Officer the Trustee has knowledge of the occurrence thereof. Except in
the case of a Default in any payment on any Security, the Trustee may withhold
the notice if and so long as a committee of its Trust Officers in good faith
determines that withholding the notice is in the interests of Securityholders.

SECTION 6.6 Reports by Trustee to Holders.

Within 60 days after the reporting date stated in Section
10.10, the Trustee shall mail to Securityholders a brief report dated as of such
date that complies with TIA Section 313(a) if required by that Section. The
Trustee also shall comply with TIA Section 313(b)(2).

A copy of each report at the time of its mailing to
Securityholders shall be filed with the SEC and each stock exchange on which
the Securities are listed. The Company shall promptly notify the Trustee when
the Securities are listed on any stock exchange and of any delisting thereof.

SECTION 6.7 Compensation and Indemnity.

The Company shall pay to the Trustee from time to time
reasonable compensation for its services. The Trustee's compensation shall not
be limited by any law on compensation of a trustee of an express trust. The
Company shall reimburse the Trustee upon request for all reasonable
out-of-pocket disbursements, expenses and advances incurred by it. Such expenses
shall include the reasonable compensation and out-of-pocket disbursements and
expenses of the Trustee's agents and counsel.

The Company shall indemnify the Trustee for, and hold it
harmless against, any loss, liability or expense, including reasonable
attorneys' fees, disbursements and expenses, incurred by it arising out of or in
connection with the administration of this trust and the performance of its
duties hereunder including the costs and expenses of defending itself against
any claim or liability in connection with the exercise or performance of any of
its powers or duties hereunder. The Trustee shall notify the Company promptly of
any claim for which it may seek indemnity. Failure by the Trustee to so notify
the Company

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shall not relieve the Company of its obligations hereunder. The Company shall
defend the claim and the Trustee shall cooperate in the defense. The Trustee may
have separate counsel and the Company shall pay the reasonable fees and expenses
of such counsel. The Company need not pay for any settlement made without its
consent, which consent shall not be unreasonably withheld.

The Company need not reimburse any expense or indemnify
against any loss or liability incurred by the Trustee through negligence or bad
faith.

To secure the Company's payment obligations in this Section,
the Trustee shall have a Lien prior to the Securities on all money or property
held or collected by the Trustee, except that held in trust to pay principal and
interest on particular Securities.

When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 5.1(f) or (g) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.

The Company's obligations under this Section 6.7 and any Lien
arising hereunder shall survive the resignation or removal of the Trustee, the
discharge of the Company's obligations pursuant to Article VII of this Indenture
and the termination of this Indenture.

SECTION 6.8 Replacement of Trustee.

A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section.

The Trustee may resign at any time by so notifying the
Company. The Holders of a majority in principal amount of the Securities may, by
written notice to the Trustee, remove the Trustee by so notifying the Trustee
and the Company. The Company, by notice to the Trustee, shall remove the Trustee
if:

(a) the Trustee fails to comply with Section 6.10;

(b) the Trustee is adjudged a bankrupt or an insolvent;

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(c) a receiver or public officer takes charge of the Trustee
or its property; or

(d) the Trustee becomes incapable of acting.

If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office, the
Holders of a majority in principal amount of the Securities may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.

If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee, the
Company or the Holders of at least 10% in principal amount of the Securities may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.

If the Trustee fails to comply with Section 6.10, any
Securityholder may petition any court of competent jurisdiction for the removal
of the Trustee and the appointment of a successor Trustee.

A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Securityholders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, subject to the Lien
provided for in Section 6.7.

SECTION 6.9 Successor Trustee by Merger, etc.

If the Trustee consolidates, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the successor corporation without any further act shall be the
successor Trustee.

SECTION 6.10 Eligibility; Disqualification.

This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a)(1). The Trustee shall always have a combined
capital and surplus of at least $50,000,000 as set forth in its most recent
pub-

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lished annual report of condition. The Trustee shall comply with TIA Section
310(b). Nothing herein shall prevent the Trustee from filing with the SEC the
application referred to in the second-to-last paragraph of TIA Section 310(b).

SECTION 6.11 Preferential Collection of Claims Against Company.

The Trustee shall comply with TIA Section 311(a), except with
respect to any creditor relationship listed in TIA Section 311(b). A Trustee who
has resigned or been removed is subject to TIA Section 311(a) to the extent
indicated.

ARTICLE VII

SATISFACTION AND DISCHARGE OF INDENTURE

SECTION 7.1 Discharge of Liability on Securities; Defeasance.

If (i) the Company delivers to the Trustee all outstanding
Securities (other than Securities replaced pursuant to Section 2.9) for
cancellation or (ii) all outstanding Securities have become due and payable and
the Company irrevocably deposits with the Trustee as trust funds solely for the
benefit of the Holders for that purpose funds sufficient to pay at maturity the
principal of and all accrued interest on all outstanding Securities (other than
Securities replaced pursuant to Section 2.9), and if in either case the Company
pays all other sums payable hereunder by the Company, then, subject to Sections
7.2 and 7.7, this Indenture shall cease to be of further effect. The Trustee
shall acknowledge satisfaction and discharge of this Indenture on demand of the
Company accompanied by an Officers' Certificate and an Opinion of Counsel and at
the cost and expense of the Company.

SECTION 7.2 Termination of Company's Obligations.

Except as otherwise provided in this Section 7.2, the Company
may terminate its obligations under the Securities and this Indenture if:

(i) the Securities mature within one year or all of them are
to be called for redemption within one year under arrangements satisfactory to
the Trustee for giving the notice of redemption, (ii) the Company irrevocably
deposits in trust with the Trustee or Paying Agent (other than the Company or a
Subsidiary or Affiliate of the Company) under the terms of an irrevocable trust

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agreement in form and substance satisfactory to the Trustee, as trust funds
solely for the benefit of the Holders for that purpose, money or U.S. Government
Obligations that, through the payment of interest and principal in respect
thereof in accordance with its terms, will provide, not later than one (1)
Business Day prior to the applicable payment date, money sufficient (in the
opinion of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee), without
consideration of any reinvestment of interest, to pay principal and interest on
the Securities to maturity or redemption, as the case may be, and to pay all
other sums payable by it hereunder, (iii) no Default shall have occurred and be
continuing on the date of such deposit, (iv) such deposit will not result in or
constitute a Default or result in a breach or violation of, or constitute a
default under, any other agreement or instrument to which the Company is a party
or by which it is bound and (v) the Company has delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, in each case stating that all
conditions precedent provided for herein relating to the satisfaction and
discharge of this Indenture have been complied with; provided that the Trustee
or Paying Agent shall have been irrevocably instructed to apply such money or
the proceeds of such U.S. Government Obligations to the payment of such
principal and interest with respect to the Securities.

With respect to the foregoing, the Company's obligations in
Sections 2.2, 2.3, 2.4, 2.5, 2.6, 2.7, 2.8, 2.9, 2.14, 3.1, 3.2, 6.7, 6.8, 7.5
and 7.6 shall survive until the Securities are no longer outstanding.
Thereafter, only the Company's obligations in Sections 6.7, 6.8 and 7.6 shall
survive. After any such irrevocable deposit and fulfillment of the other
requirements of this Section 7.2, the Trustee upon request shall acknowledge in
writing the discharge of the Company's obligations under the Securities and this
Indenture except for those surviving obligations specified above.

SECTION 7.3 Defeasance and Discharge of Indenture.

The Company will be deemed to have paid and will be discharged
from any and all obligations in respect of the Securities on the 123rd day after
the date of the deposit referred to in clause (i) hereof, and the provisions of
this Indenture will no longer be in effect with respect to the Securities, in
each case subject to the penultimate paragraph of this Section 7.3, and the
Trustee, at the reasonable request of and at the expense of the Company, shall
execute proper instruments acknowledging the same, except as to (a) rights of
registration of transfer and exchange, (b) substitution of apparently mutilated,
defaced, de-

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stroyed, lost or stolen Securities, (c) rights of Holders to receive payments of
principal thereof and interest thereon, (d) the Company's obligations under
Section 3.2, (e) the rights, obligations and immunities of the Trustee hereunder
including, without limitation, those arising under Section 6.7 hereof, (f) the
rights of the Holders as beneficiaries of this Indenture with respect to the
property so deposited with the Trustee payable to all or any of them and (g) the
rights, obligations and immunities which survive as provided in the penultimate
paragraph of this Section 7.3; provided that the following conditions shall have
been satisfied:

(i) with reference to this Section 7.3, the Company
has irrevocably deposited or caused to be irrevocably deposited with
the Trustee (or another trustee satisfying the requirement of Section
6.10) or Paying Agent (other than the Company or a Subsidiary or
Affiliate of the Company) and conveyed all right, title and interest
for the benefit of the Holders, under the terms of an irrevocable trust
agreement in form and substance satisfactory to the Trustee as trust
funds in trust, specifically pledged as security for, and dedicated
solely to, the benefit of the Holders, in and to, (A) money in an
amount, (B) U.S. Government Obligations that, through the payment of
interest and principal in respect thereof in accordance with their
terms, will provide, not later than one Business Day before the due
date of any payment referred to in this clause (i), money in an amount
or (C) a combination thereof in an amount sufficient, in the opinion of
a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee,
to pay and discharge, without consideration of any reinvestment of
interest and after payment of all federal, state and local taxes or
other fees, charges and assessments in respect thereof payable by the
Trustee or Paying Agent, the principal of and interest on the
outstanding Securities when due; provided that the Trustee or Paying
Agent shall have been irrevocably instructed to apply such money or the
proceeds of such U.S. Government Obligations to the payment of such
principal and interest with respect to the Securities;

(ii) such deposit will not result in or constitute a
Default or result in a breach or violation of, or constitute a default
under, any other agreement or instrument to which the Company is a
party or by which it is bound;

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(iii) no Default shall have occurred and be
continuing on the date of such deposit or during the period ending on
the 123rd day after such date of deposit;

(iv) the Company shall have delivered to the Trustee
(A) either (1) a ruling directed to the Trustee received from the
Internal Revenue Service to the effect that the Holders will not
recognize income, gain or loss for federal income tax purposes as a
result of the Company's exercise of its option under this Section 7.3
and will be subject to federal income tax on the same amount and in the
same manner and at the same times as would have been the case if such
option had not been exercised or (2) an Opinion of Counsel (who may not
be an employee of the Company) to the same effect as the ruling
described in clause (1) accompanied by a ruling to that effect
published by the Internal Revenue Service, unless there has been a
change in the applicable federal income tax law since the date of this
Indenture such that a ruling from the Internal Revenue Service is no
longer required and (B) an Opinion of Counsel to the effect that (1)
the creation of the defeasance trust does not violate the Investment
Company Act of 1940, (2) after the passage of 123 days following the
deposit (except, with respect to any trust funds for the account of any
Holder who may be deemed to be an "insider" for purposes of Title 11 of
the United States Code, after one year following the deposit), the
trust funds will not be subject to the effect of Section 547 of the
United States Bankruptcy Code or Section 15 of the New York Debtor and
Creditor Law in a case commenced by or against the Company under either
such statute, and either (x) the trust funds will no longer remain the
property of the Company (and therefore, will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally) or (y) if a court
were to rule under any such law in any case or proceeding that the
trust funds remained property of the Company, (I) assuming such trust
funds remained in the possession of the Trustee prior to such court
ruling to the extent not paid to Holders, the Trustee will hold, for
the benefit of the Holders, a valid and perfected security interest in
such trust funds that is not avoidable in bankruptcy or otherwise
except for the effect of Section 552(b) of the United States Bankruptcy
Code on interest on the trust funds accruing after the commencement of
a case under such statute and (II) the Holders will be entitled to
receive adequate protection of their interests in such trust funds if
such trust funds are used in such case or proceeding; and

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(v) the Company has delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, in each case stating
that all conditions precedent provided for herein relating to the
defeasance contemplated by this Section 7.3 have been complied with.

Notwithstanding the foregoing clause (i), prior to the end of
the 123-day period referred to in clause (iv)(B)(2) above, none of the Company's
obligations under this Indenture shall be discharged. Subsequent to the end of
such 123-day period with respect to this Section 7.3, the Company's obligations
in Sections 2.2, 2.3, 2.4, 2.5, 2.6, 2.7, 2.8, 2.9, 2.14, 3.1, 3.2, 6.7, 6.8,
7.6 and 7.7 shall survive until the Securities are no longer outstanding.
Thereafter, only the Company's obligations in Sections 6.7, 7.6 and 7.7 shall
survive. If and when a ruling from the Internal Revenue Service or Opinion of
Counsel referred to in clause (iv)(A) above is able to be provided specifically
without regard to, and not in reliance upon, the continuance of the Company's
obligations under Section 3.1, then the Company's obligations under such Section
3.1 shall cease upon delivery to the Trustee of such ruling or Opinion of
Counsel and compliance with the other conditions precedent provided for herein
relating to the defeasance contemplated by this Section 7.3.

After any such irrevocable deposit and the fulfillment of the
other requirements of this Section 7.3, the Trustee upon request shall
acknowledge in writing the discharge of the Company's obligations under the
Securities and this Indenture except for those surviving obligations in the
immediately preceding paragraph.

SECTION 7.4 Defeasance of Certain Obligations.

The Company may omit to comply with any term, provision or
condition set forth in clauses (iv) and (v) of Section 4.1 and Sections 3.3
through 3.19, and clause (c) of Section 5.1 with respect to clauses (iv) and (v)
of Section 4.1 and Section 3.3 through 3.19, and clauses (d) and (e) of Section
5.1 shall be deemed not to be Events of Default, in each case with respect to
the outstanding Securities if:

(i) with reference to this Section 7.4, the Company
has irrevocably deposited or caused to be irrevocably deposited with
the Trustee (or another trustee satisfying the requirements of Section
6.10) or Paying Agent (other than the Company or a Subsidiary or
Affiliate of the Company) and conveyed all right, title and interest
for the benefit of the

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Holders, under the terms of an irrevocable trust agreement in form and
substance satisfactory to the Trustee as trust funds in trust,
specifically pledged as security for, and dedicated solely to, the
benefit of the Holders, in and to, (A) money in an amount, (B) U.S.
Government Obligations that, through the payment of interest and
principal in respect thereof in accordance with their terms, will
provide, not later than one Business Day before the due date of any
payment referred to in this clause (i), money in an amount or (C) a
combination thereof in an amount, sufficient, in the opinion of a
nationally recognized firm of independent public accountants expressed
in a written certification thereof delivered to the Trustee, to pay and
discharge, without consideration of the reinvestment of such interest
and after payment of all federal, state and local taxes or other fees,
charges and assessments in respect thereof payable by the Trustee or
Paying Agent, the principal of and interest on the outstanding
Securities when due; provided that the Trustee or Paying Agent shall
have been irrevocably instructed to apply such money or the proceeds of
such U.S. Government Obligations to the payment of such principal and
interest with respect to the Securities;

(iii) no Default shall have occurred and be
continuing on the date of such deposit;

(iv) the Company has delivered to the Trustee an
Opinion of Counsel who is not employed by the Company to the effect
that (A) the creation of the defeasance trust does not violate the
Investment Company Act of 1940, (B) the Holders have a valid
first-priority security interest in the trust funds, (C) the Holders
will not recognize income, gain or loss for federal income tax purposes
as a result of such deposit and defeasance of certain obligations and
will be subject to federal income tax on the same amount and in the
same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred and (D) after the passage of
123 days following the deposit (except, with respect to any trust funds
for the account of any Holder who may be deemed to be an "insider" for
purposes of the United States Bankruptcy Code, after one year following
the deposit), the trust funds will not be subject to the effect

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<PAGE> 92
of Section 547 of the United States Bankruptcy Code or Section 15 of
the New York Debtor and Creditor Law in a case commenced by or against
the Company under either such statute, and either (1) the trust funds
will no longer remain the property of the Company (and therefore, will
not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally)
or (2) if a court were to rule under any such law in any case or
proceeding that the trust funds remained property of the Company, (x)
assuming such trust funds remained in the possession of the Trustee
prior to such court ruling to the extent not paid to Holders, the
Trustee will hold, for the benefit of the Holders, a valid and
perfected security interest in such trust funds that is not avoidable
in bankruptcy or otherwise except for the effect of Section 552(b) of
the United States Bankruptcy Code on interest on the trust funds
accruing after the commencement of a case under such statute and (y)
the Holders will be entitled to receive adequate protection of their
interests in such trust funds if such trust funds are used in such case
or proceeding; and

(v) the Company has delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, in each case stating
that all conditions precedent provided for herein relating to the
defeasance contemplated by this Section 7.4 have been complied with.

SECTION 7.5 Application of Trust Money.

Subject to Section 7.7 of this Indenture, the Trustee or
Paying Agent shall hold in trust money or U.S. Government Obligations deposited
with it pursuant to Section 7.2, 7.3 or 7.4 of this Indenture, as the case may
be, and shall apply the deposited money and the money from U.S. Government
Obligations in accordance with this Indenture to the payment of principal of and
interest on the Securities. The Trustee shall be under no obligation to invest
such money or U.S. Government Obligations except as it may agree with the
Company and in no event shall the Trustee have any liability for, or in respect
of, any such investment made as agreed with the Company.

SECTION 7.6 Repayment to Company.

Subject to Sections 6.7, 7.2, 7.3 and 7.4 of this Indenture,
the Trustee and the Paying Agent shall promptly pay to the Company upon written
request any excess money held by them at any time and thereupon shall be

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relieved from all liability with respect to such money. The Trustee and the
Paying Agent shall pay to the Company upon written request any money held by
them for the payment of principal or interest that remains unclaimed for two
years; provided, however, that the Company shall if requested by the Trustee or
the Paying Agent, give the Trustee or such Paying Agent indemnification
reasonably satisfactory to it against any and all liability which may be
incurred by it by reason of such payment; and provided, further, that the
Trustee or such Paying Agent before being required to make any payment may cause
to be published at the request and expense of the Company once in a newspaper of
general circulation in the City of New York or mail to each Holder entitled to
such money at such Holder's address as set forth in the Security Register notice
that such money remains unclaimed and that after a date specified therein (which
shall be at least 30 days from the date of such publication or mailing) any
unclaimed balance of such money then remaining will be repaid to the Company.
After payment to the Company, Holders entitled to such money must look to the
Company for payment as general creditors unless an applicable law designates
another person, and all liability of the Trustee and such Paying Agent with
respect to such money shall cease.

SECTION 7.7 Reinstatement.

If the Trustee or Paying Agent is unable to apply any money or
U.S. Government Obligations in accordance with Section 7.2, 7.3 or 7.4 of this
Indenture, as the case may be, by reason of any legal proceeding or by reason of
any order or judgment of any court or governmental authority enjoining,
restraining or otherwise prohibiting such application, the Company's obligations
under this Indenture and the Securities shall be revived and reinstated as
though no deposit had occurred pursuant to Section 7.2, 7.3 or 7.4 of this
Indenture, as the case may be, until such time as the Trustee or Paying Agent is
permitted to apply all such money or U.S. Government Obligations in accordance
with Section 7.2, 7.3 or 7.4 of this Indenture, as the case may be; provided
that, if the Company has made any payment of principal of or interest on any
Securities because of the reinstatement of its obligations, the Company shall be
subrogated to the rights of the Holders of such Securities to receive such
payment from the money or U.S. Government Obligations held by the Trustee or
Paying Agent.

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ARTICLE VIII

AMENDMENTS AND SUPPLEMENTS

SECTION 8.1 Without Consent of Holders.

The Company and the Trustee may amend or supplement this
Indenture or the Securities without notice to or the consent of any
Securityholder:

(a) to cure any ambiguity, omission, defect or
inconsistency;

(b) to comply with Article IV;

(c) to provide for uncertificated Securities in
addition to certificated Securities; provided, however, that the
uncertificated Securities are issued in registered form for purposes of
Section 163(f) of the Internal Revenue Code of 1986, as amended, or in
a manner such that the uncertificated Securities are described in
Section 163(f)(2)(B) of the Code;

(d) to add additional guarantees with respect to the
Securities or to secure the Securities;

(e) to add to the covenants of the Company for the
benefit of the Holders or to surrender any right or power herein
conferred upon the Company;

(f) to comply with the requirements of the SEC in
connection with qualification of the Indenture under the TIA; or

(g) to make any change that does not adversely affect
the rights of any Securityholder.

After an amendment or supplement under this Section becomes
effective, the Company shall mail to Securityholders a notice briefly describing
such amendment or supplement. The failure to give such notice to all
Securityholders, or any defect therein, shall not impair or affect the validity
of an amendment or supplement under this Section.

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SECTION 8.2 With Consent of Holders.

The Company and the Trustee may amend or supplement this
Indenture or the Securities with the written consent of the Holders of a
majority in principal amount of the Securities. However, without the consent of
each Securityholder affected, an amendment or supplement under this Section may
not:

(a) reduce the amount of Securities the Holders of
which must consent to an amendment or supplement;

(b) reduce the rate of or change the time for payment
of interest on any Security;

(d) reduce the premium payable upon the redemption of
any Security or change the time at which any Security may or shall be
redeemed in accordance with Article IX;

(e) make any Security payable in currency or
consideration other than that stated in the Security;

(f) make any change in Section 5.4, Section 5.7 or
this second sentence of this Section 8.2.

It shall not be necessary for the consent of the Holders under
this Section 8.2 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.

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SECTION 8.3 Compliance with Trust Indenture Act.

Every amendment or supplement to this Indenture or the
Securities shall be set forth in a supplemental indenture that complies with the
TIA as then in effect.

SECTION 8.4 Revocation and Effect of Consents.

Until an amendment or supplement under this Article or a
waiver under Article VI becomes effective, a consent to it by a Holder of a
Security is a continuing consent by the Holder and every subsequent Holder of a
Security or portion of a Security that evidences the same debt as the consenting
Holder's Security, even if notation of the consent is not made on any Security.
However, any such Holder or subsequent Holder may revoke the consent as to his
Security or portion of a Security if the Trustee receives the notice of
revocation before the date the amendment, supplement or waiver becomes
effective.

After an amendment or supplement becomes effective, it shall
bind every Securityholder.

SECTION 8.5 Notation on or Exchange of Securities.

If an amendment changes the terms of a Security, the Trustee
may require the Holder of the Security to deliver it to the Trustee. The Trustee
may place an appropriate notation on the Security regarding the changed terms
and return it to the Holder. Alternatively, if the Company or the Trustee so
determines, the Company in exchange for the Security shall issue and the Trustee
shall authenticate a new Security that reflects the changed terms. Failure to
make the appropriate notation or to issue a new Security shall not affect the
validity of such amendment.

SECTION 8.6 Trustee To Sign Amendments.

The Trustee shall sign any supplemental indenture which sets
forth an amendment or supplement authorized pursuant to this Article if the
amendment or supplement does not adversely affect the rights, duties,
liabilities or immunities of the Trustee. If it does, the Trustee may but need
not sign it. In signing such supplemental indenture the Trustee shall be
entitled to receive, and (subject to Section 6.1) shall be fully protected in
relying upon, an Officers' Certificate and an Opinion of Counsel stating that
such supplemental indenture is authorized or

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permitted by this Indenture and, with respect to an amendment or supplement
pursuant to Section 8.2, evidence of the consents of Holders required in
connection therewith.

SECTION 8.7 Fixing of Record Dates.

The Company may, but shall not be obligated to, fix a record
date for the purpose of determining the Holders entitled to take any action
under this Indenture by vote or consent. Except as provided herein, such record
date shall be the later of 30 days prior to the first solicitation of such
consent or vote or the date of the most recent list of Securityholders furnished
to the Trustee pursuant to Section 2.5 prior to such solicitation. If a record
date is fixed, those Persons who were Securityholders at such record date (or
their duly designated proxies), and only those Persons, shall be entitled to
take such action by vote or consent or to revoke any vote or consent previously
given, whether or not such Persons continue to be Holders after such record
date; provided, however, that unless such vote or consent is obtained from the
Holders (or their duly designated proxies) of the requisite principal amount of
outstanding Securities prior to the date which is the 120th day after such
record date, any such vote or consent previously given shall automatically and
without further action by any Holder be canceled and of no further effect.

ARTICLE IX

REDEMPTION

SECTION 9.1 Notices to Trustee.

If the Company elects to redeem Securities pursuant to
paragraph 5 of the Securities it shall notify the Trustee of the redemption date
and the principal amount (not including any premium in respect thereof) of
Securities to be redeemed and the paragraph of the Securities pursuant to which
the redemption will occur.

The Company shall give the notices provided for in this
Section at least 40 days before the redemption date (unless a shorter period
shall be satisfactory to the Trustee). Such notice shall be accompanied by an
Officers' Certificate to the effect that such redemption will comply with the
conditions herein. If fewer than all the Securities are to be redeemed, the
record date relating to such

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redemption shall be selected by the Company and given to the Trustee, which
record date shall be not less than 15 days after the date of notice to the
Trustee.

SECTION 9.2 Selection of Securities To Be Redeemed.

If fewer than all the Securities are to be redeemed, the
Trustee shall select the Securities to be redeemed pro rata or by lot or by any
other method that complies with applicable legal and securities exchange
requirements, if any, and that the Trustee considers, in its sole discretion,
fair and appropriate and in accordance with methods generally used at the time
of selection by fiduciaries in similar circumstances. The Trustee shall make the
selection not more than 75 days before the redemption date from outstanding
Securities not previously called for redemption. The Trustee may select for
redemption portions of the principal of Securities that have denominations
larger than $1,000. Securities and portions of them selected by the Trustee
shall be in amounts of $1,000 or whole multiples of $1,000. Provisions of this
Indenture that apply to Securities called for redemption also apply to portions
of Securities called for redemption.

SECTION 9.3 Notice of Redemption.

At least 30 days but not more than 60 days before a redemption
date, the Company shall mail a notice of redemption to each Holder whose
Securities are to be redeemed at the address set forth for such Holder on the
register referred to in Section 2.3.

The notice shall identify the Securities to be redeemed and
shall state:

(a) the redemption date;

(b) the redemption price;

(d) that Securities called for redemption must be
surrendered to the Paying Agent to collect the redemption price;

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(e) if fewer than all the outstanding Securities are
to be redeemed, the identification and principal amounts of the
particular Securities to be redeemed;

(f) that, unless the Company defaults in making the
redemption payment, interest on Securities called for redemption ceases
to accrue on and after the redemption date; and

(g) that no representation is made as to the
correctness or accuracy of the CUSIP number, if any, listed in such
notice or printed on the Securities.

At the Company's written request, made at least 45 days before
a redemption date, unless a shorter period shall be satisfactory to the Trustee,
the Trustee shall give the notice of redemption provided for in this Section in
the Company's name and at its expense.

SECTION 9.4 Effect of Notice of Redemption.

Once notice of redemption is mailed, Securities called for
redemption become due and payable on the redemption date at the redemption
price. Upon surrender to the Paying Agent, such Securities shall be paid at the
redemption price stated in the notice, plus accrued and unpaid interest to the
redemption date.

SECTION 9.5 Deposit of Redemption Price.

Prior to 11:00 a.m., eastern standard time, the redemption
date, the Company shall deposit with the Paying Agent (or, if the Company or a
Subsidiary is the Paying Agent, shall segregate and hold in trust) money
sufficient to pay the redemption price of and accrued and unpaid interest on all
Securities to be redeemed on that date other than Securities or portions of
Securities called for redemption which have been delivered by the Company to the
Trustee for cancellation.

SECTION 9.6 Securities Redeemed in Part.

Upon surrender of a Security that is redeemed in part, the
Company shall execute and the Trustee shall authenticate for the Holder (at the

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Company's expense) a new Security equal in principal amount to the unredeemed
portion of the Security surrendered.

ARTICLE X

MISCELLANEOUS

SECTION 10.1 Trust Indenture Act Controls.

If any provision of this Indenture limits, qualifies or
conflicts with the duties imposed by any of TIA Sections 310 to 317, inclusive,
through operation of TIA Section 318(c), such imposed duties shall control.

SECTION 10.2 Notices.

Any notice or communication shall be in writing and delivered
in person, or mailed by first-class mail (certified, return receipt requested),
addressed as follows:

if to the Company:

Calpine Corporation
50 West San Fernando Street
San Jose, California 95113
Attention: Corporate Secretary

if to the Trustee:

Fleet National Bank
777 Main Street CT MO 0238
Hartford, Connecticut 06115
Attention: Corporate Trust Department

The Company or the Trustee by notice to the others may
designate additional or different addresses for subsequent notices or
communications. Any notice to the Trustee under this Indenture shall be deemed
given only when received by the Trustee at the address specified in this Section
10.2.

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Any notice or communication to a Securityholder shall be
mailed by first-class mail to the Securityholder's address shown on the register
kept by the Registrar. Failure to mail a notice or communication to a
Securityholder or any defect in it shall not affect its sufficiency with respect
to other Securityholders.

If a notice or communication is mailed in the manner provided
above within the time prescribed, it is duly given, whether or not the addressee
receives it.

If the Company mails a notice or communication to
Securityholders, it shall mail a copy to the Trustee and each Agent at the same
time.

SECTION 10.3 Communication by Holders with Other Holders.

Securityholders may communicate pursuant to TIA Section 312(b)
with other Securityholders with respect to their rights under this Indenture or
the Securities. The Company, the Trustee, the Registrar and anyone else shall
have the protection of TIA Section 312(c).

SECTION 10.4 Certificate and Opinion as to Conditions Precedent.

Upon any request or application by the Company to the Trustee
to take any action under this Indenture, the Company shall, if requested by the
Trustee, furnish to the Trustee:

(a) an Officers' Certificate in form and substance
reasonably satisfactory to the Trustee stating that, in the opinion of
the signers, all conditions precedent (including any covenants
compliance with which constitutes a condition precedent), if any,
provided for in this Indenture relating to the proposed action have
been complied with; and

(b) an Opinion of Counsel in form and substance
reasonably satisfactory to the Trustee stating that, in the opinion of
such counsel (which may rely upon an Officers' Certificate as to
factual matters), all such conditions precedent have been complied
with.

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SECTION 10.5 Statements Required in Certificate or Opinion.

Each Officers' Certificate or Opinion of Counsel with respect
to compliance with a condition or covenant provided for in this Indenture other
than certificates provided pursuant to Section 3.9 shall include:

(a) a statement that the Person making such
certificate or opinion has read such covenant or condition;

(b) a brief statement as to the nature and scope of
the examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;

(c) a statement that, in the opinion of such Person,
he or she has made such examination or investigation as is necessary to
enable him or her to express an informed opinion as to whether or not
such covenant or condition has been complied with; and

(d) a statement as to whether or not, in the opinion
of such Person, such condition or covenant has been complied with.

SECTION 10.6 Rules by Trustee and Agents.

The Trustee may make reasonable rules for action by or a
meeting of Securityholders. The Registrar or Paying Agent may make reasonable
rules and set reasonable requirements for its functions.

SECTION 10.7 Legal Holidays.

A "Legal Holiday" is a Saturday, a Sunday or a day on which
banking institutions are not required to be open in the State of New York or the
State(s) in which the offices of the Trustee and the Paying Agent are located.
If a payment date is a Legal Holiday, payment may be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue
for the intervening period. If a regular record date is a Legal Holiday, the
regular record date shall not be affected.

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SECTION 10.8 Successors; No Recourse Against Others.

(a) All agreements of the Company in this Indenture and the
Securities shall bind its successor. All agreements of the Trustee in this
Indenture shall bind its successor.

(b) All liability of the Company described in the Securities
insofar as it relates to any director, officer, employee or stockholder, as
such, of the Company is waived and released by each Securityholder.

SECTION 10.9 Duplicate Originals.

The parties may sign any number of copies of this Indenture.
One signed copy is enough to prove this Indenture.

SECTION 10.10 Other Provisions.

The first certificate pursuant to Section 3.09 shall be for
the fiscal year ending on December 31, 1996.

The reporting date for Section 6.6 is May 15 of each year. The
first reporting date is May 15, 1997.

SECTION 10.11 Governing Law.

The laws of the State of New York govern this Indenture and
the Securities, without regard to the conflicts of laws rules thereof.

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SIGNATURES

Dated: May 16, 1996

CALPINE CORPORATION

By: /s/ Peter Cartwright
-------------------------------
Name: Peter Cartwright
Title: Chief Executive Officer
and President

Attest:

By: /s/ Ann B. Curtis
-------------------------------
Name: Ann B. Curtis
Title: Secretary

[SEAL] FLEET NATIONAL BANK,
as Trustee

By:
-------------------------------
Name:
Title:

Attest:

By:
-------------------------------
Name:
Title:
<PAGE> 105
SIGNATURES

Dated: May 16, 1996

CALPINE CORPORATION

By:
-------------------------------
Name:
Title:

Attest:

By:
-------------------------------
Name:
Title:

[SEAL] FLEET NATIONAL BANK,
as Trustee

By: /s/ Steven Cimalore
-------------------------------
Name: STEVEN CIMALORE
Title: VICE PRESIDENT

Attest:

By: /s/ Anna M. Vignuolo
-------------------------------
Name: Anna M. Vignuolo
Title: Corporate Administrator
<PAGE> 106
EXHIBIT A

================================================================================
(Form of Face of Initial Security)

[UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"),
TO THE COMPANY (AS DEFINED BELOW) OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE &
CO., OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC
(AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED
BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

TRANSFERS OF THIS SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS SECURITY SHALL BE LIMITED
TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 2.8
OF THE INDENTURE (AS DEFINED BELOW).]*

THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY
NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS
ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B)
IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2),
(3), OR (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN "INSTITUTIONAL
ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS
SECURITY IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE
SECURITIES ACT, (2) AGREES THAT IT WILL NOT, WITHIN THREE YEARS AFTER THE LATER
OF THE ORIGINAL ISSUANCE OF THIS SECURITY OR THE LAST DATE ON WHICH THIS
SECURITY WAS HELD BY AN AFFILIATE OF THE COMPANY, RESELL OR OTHERWISE TRANSFER
THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) INSIDE
THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE
144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL
ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A
SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE
OBTAINED FROM THE TRUSTEE) AND, IF SUCH

- --------
* This legend should only be added if the Security is issued as a Global
Note.
<PAGE> 107
TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF SECURITIES AT THE
TIME OF TRANSFER OF LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE
THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER
THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY
RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL
DELIVER TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF
THIS SECURITY WITHIN THREE YEARS AFTER THE LATER OF THE ORIGINAL ISSUANCE OF
THIS SECURITY OR THE LAST DATE ON WHICH THIS SECURITY WAS HELD BY AN AFFILIATE
OF THE COMPANY, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH HEREIN
RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS SECURITY TO THE TRUSTEE.
IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR, THE HOLDER
MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE COMPANY SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY
REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM
BY REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION
REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS SECURITY IN
VIOLATION OF THE FOREGOING RESTRICTIONS.

A-2
<PAGE> 108
CALPINE CORPORATION
10 1/2% SENIOR NOTE DUE 2006

No. ____________ $______________

CUSIP: 131347AB2
CINS: U13055AA3
ISIN: USU13055AA32
AI: 131347AC0

Calpine Corporation, a California corporation, promises to pay to
___________________, or assigns, the principal sum of __________________________
Dollars on May 15, 2006.

Interest Payment Dates: May 15 and November 15
Record Dates: May 1 and November 1

Additional provisions of this Security are set forth on the reverse
hereof.

IN WITNESS WHEREOF, the Company has caused this Security to be
signed manually or by facsimile by its duly authorized officers.

Date:

CALPINE CORPORATION

By: _______________________________
Name:
Title:

TRUSTEE'S CERTIFICATE
OF AUTHENTICATION:

Fleet National Bank, as
Trustee, certifies that
this is one of the Securities
referred to in the Indenture. (SEAL)

By: _________________________
Authorized Signature

================================================================================

A-3
<PAGE> 109
(Form of Reverse of Initial Security)

CALPINE CORPORATION
10 1/2% SENIOR NOTE DUE 2006

(1) Interest. Calpine Corporation, a California corporation
(such corporation, and its successors and assigns under the Indenture referred
to below, being herein called the "Company"), promises to pay interest on the
principal amount of this Security at 10 1/2% per annum (subject to adjustment as
provided below). The Company will pay interest semiannually on May 15 and
November 15 of each year. Interest on the Securities will accrue from the most
recent date to which interest has been paid or, if no interest has been paid,
from May 16, 1996. Interest will be computed on the basis of a 360-day year
consisting of twelve 30-day months.

If an exchange offer registered under the Securities Act (as
defined in the Indenture) is not consummated, or a registration statement under
the Securities Act with respect to resales of the Securities is not declared
effective by the SEC (as defined in the Indenture), by the 180th calendar day
following the initial sale of the Securities, in accordance with the terms of a
Registration Rights Agreement dated May 13, 1996 by and among the Company,
Morgan Stanley & Co. Incorporated, CS First Boston Corporation, Goldman, Sachs &
Co. and Scotia Capital Markets (USA) Inc., interest due per annum on the
Securities shall be permanently increased by one-half of one percent, commencing
as of November 13, 1996 (the 181st calendar day following the initial sale of
the Securities). The holder of this Security is entitled to the benefits of such
Registration Rights Agreement.

(2) Method of Payment. The Company will pay interest on the
Securities (except defaulted interest) to the persons who are registered Holders
of Securities at the close of business on the record date next preceding the
interest payment date even though Securities are canceled after the record date
and on or before the interest payment date. Holders must surrender Securities to
a Paying Agent to collect principal payments. The Company will pay principal and
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts. However, the Company may pay
principal and interest by check payable in such money. It may mail an interest
check to a Holder's registered address.

(3) Paying Agent, Registrar. Initially, Fleet National Bank, a
national banking association (the "Trustee"), will act as Paying Agent and
Registrar and Shawmut Trust Company, a New York chartered trust company, will
act as additional paying agent and co-registrar. The Company may change any
Paying Agent, Registrar or co-registrar without notice. The Company may act as
Paying Agent, Registrar or co-registrar.

A-4
<PAGE> 110
(4) Indenture. The Company issued the Securities under an
Indenture dated as of May 16, 1996 (the "Indenture") between the Company and the
Trustee. The Securities are unsecured general obligations of the Company limited
to $180,000,000 in aggregate principal amount. The terms of the Securities
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939 (15 U.S. Code Sections
77aaa-77bbbb) (the "TIA"). Capitalized terms used herein but not defined herein
are used as defined in the Indenture. The Securities are subject to all such
terms, and Securityholders are referred to the Indenture and the TIA for a
statement of such terms.

(5) Optional Redemption. Except as set forth in the following
paragraph, the Company may not redeem the Securities prior to May 15, 2001. On
and after such date, the Company may redeem the Securities at any time as a
whole, or from time to time in part, at the following redemption prices
(expressed in percentages of principal amount), plus accrued interest to the
redemption date, if redeemed during the 12-month period beginning May 15,

<TABLE>
<CAPTION>
Year %
---- -
<S> <C>
2001 . . . . . . . . . . 105.250
2002 . . . . . . . . . . 102.625
2003 and thereafter . . . 100.000
</TABLE>

The Company may redeem up to $63,000,000 principal amount of
Securities with the proceeds of one or more Public Equity Offerings following
which there is a Public Market, at any time in whole or from time to time in
part, at a price (expressed as a percentage of principal amount), plus accrued
interest to the redemption date, of 110.5% if redeemed at any time prior to May
15, 1999.

(6) Notice of Redemption. Notice of redemption will be mailed
at least 30 days but not more than 60 days before the redemption date to each
Holder of Securities to be redeemed at the address set forth for such Holder on
the register referred to in Section 2.3 of the Indenture. Unless the Company
shall default in payment of the redemption price plus accrued interest, on and
after the redemption date interest ceases to accrue on such Securities or
portions of them called for redemption. Securities in denominations larger than
$1,000 may be redeemed in part but only in whole multiples of $1,000.

A-5
<PAGE> 111
transfer of any Security or portion of a Security selected for redemption
(except, in the case of a Security to be redeemed in part, the portion thereof
not to be redeemed) or any Securities for a period of 15 days before a selection
of Securities to be redeemed, or 15 days before an interest payment date.

(8) Put Provisions. Upon a Change of Control, any Holder of
Securities will have the right to cause the Company to repurchase all or any
part of the Securities of such Holder at a repurchase price equal to 101% of the
principal amount of the Securities to be repurchased plus accrued interest to
the date of repurchase as provided in, and subject to the terms of, the
Indenture.

(9) Defeasance. Subject to certain conditions, the Company at
any time may terminate some or all of its obligations under the Securities and
the Indenture if the Company deposits with the Trustee money and/or U.S.
Government Obligations for the payment of principal and interest on the
Securities to redemption or maturity, as the case may be.

(10) Persons Deemed Owners. The registered Holder of a
Security may be treated as its owner for all purposes, except that interest
(other than defaulted interest) will be paid to the person that was the
registered Holder on the relevant record date for such payment of interest.

(11) Amendments and Waivers. Subject to certain exceptions,
(i) the Indenture or the Securities may be amended or supplemented with the
consent of the Holders of a majority in principal amount of the Securities; and
(ii) any existing default may be waived with the consent of the Holders of a
majority in principal amount of the Securities. Without the consent of any
Securityholder, the Indenture or the Securities may be amended or supplemented
to cure any ambiguity, omission, defect or inconsistency, to provide for
assumption of Company obligations to Securityholders or to provide for
uncertificated Securities in addition to or in place of certificated Securities,
to provide for guarantees with respect to, or security for, the Securities, or
to comply with the TIA or to add additional covenants or surrender Company
rights, or to make any change that does not adversely affect the rights of any
Securityholder.

(12) Remedies. If an Event of Default occurs and is
continuing, the Trustee or Holders of at least 25% in principal amount of the
Securities may declare all the Securities to be due and payable immediately.
Securityholders may not enforce the Indenture or the Securities except as
provided in the Indenture. The Trustee may require an indemnity before it
enforces the Indenture or the Securities. Subject to certain limitations,
Holders of a majority in principal amount of the Securities may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Securityholders notice of any continuing default (except a Default in payment of
principal or interest) if it determines that withholding notice is in their
interests. The Company must furnish an annual compliance certificate to the
Trustee.

A-6
<PAGE> 112
(13) Trustee Dealings with Company. Subject to the provisions
of the TIA, the Trustee under the Indenture, in its individual or any other
capacity, may make loans to, accept deposits from, and perform services for the
Company or its Affiliates, and may otherwise deal with the Company or its
Affiliates, as if it were not Trustee. The Trustee will initially be Fleet
National Bank.

(14) No Recourse Against Others. A director, officer, employee
or stockholder, as such, of the Company shall not have any liability for any
obligations of the Company under the Securities or the Indenture or for any
claim based on, in respect of or by reason of such obligations or their
creation. Each Securityholder by accepting a Security waives and releases all
such liability. The waiver and release are part of the consideration for the
issue of the Securities.

(15) Authentication. This Security shall not be valid until
authenticated by the manual signature of an authorized signatory of the Trustee
or an authenticating agent.

(16) Abbreviations. Customary abbreviations may be used in the
name of a Securityholder or an assignee, such as: TEN COM (= tenants in common),
TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (=
Uniform Gifts to Minors Act).

Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures the Company has caused CUSIP numbers
to be printed on the Securities and has directed the Trustee to use CUSIP
numbers in notices of redemption as a convenience to Securityholders. No
representation is made as to the accuracy of such numbers either as printed on
the Securities or as contained in any notice of redemption and reliance may be
placed only on the other identification numbers placed thereon.

THE COMPANY WILL FURNISH TO ANY SECURITYHOLDER UPON WRITTEN
REQUEST AND WITHOUT CHARGE A COPY OF THE INDENTURE, WHICH HAS IN IT THE TEXT OF
THIS SECURITY IN LARGER TYPE. REQUESTS MAY BE MADE TO: SECRETARY, CALPINE
CORPORATION, 50 WEST SAN FERNANDO STREET, SAN JOSE, CALIFORNIA 95113.

A-7
<PAGE> 113
================================================================================

ASSIGNMENT FORM

To assign this Security, fill in the form below:
I or we assign and transfer this Security to

(Insert assignee's soc. sec or tax I.D. no.)

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

- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)

and irrevocably appoint agent to transfer this
Security on the books of the Company. The agent may substitute another to act
for him.

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

Dated: Signed:
------------ ----------------------

----------------------
(Sign exactly as your name
appears on the other side
of this Security)

Signature Guarantee:
--------------------------------------------

MANNER OF TRANSFER (Check one)

Transfer to Calpine Corporation / /
Transfer to Qualified Institutional Buyer / /
Transfer to Institutional Accredited Investor / /
Transfer outside the United States in
compliance with Rule 904 under
the Securities Act of 1993 / /

================================================================================

OPTION OF HOLDER TO ELECT PURCHASE FORM

If you wish to elect to have this Security purchased by the Company
pursuant to Section 3.8 or 3.12 of the Indenture, check this box: / /

If you wish to elect to have only part of this Security purchased by
the Company pursuant to Section 3.8 or 3.12 of the Indenture, state the amount:
$

*As set forth in the Indenture, any purchase pursuant to Section 3.12
is subject to proration in the event the offer is oversubscribed.

Dated: Signed:
------------ ----------------------

----------------------
(Sign exactly as your name
appears on the other side
of this Security)

Signature Guarantee:
--------------------------------------------

A-8
<PAGE> 114
EXHIBIT B

================================================================================
(Form of Face of Exchange Security)

TRANSFERS OF THIS SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS SECURITY SHALL BE LIMITED
TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 2.8
OF THE INDENTURE (AS DEFINED BELOW).]*

- --------
* This legend should only be added if the Security is issued as a Global
Note.

B-1
<PAGE> 115
CALPINE CORPORATION
___% SENIOR NOTE DUE 2006

No. ______________ $______________

CUSIP: _________

Calpine Corporation, a California corporation, promises to pay to
________________________, or registered assigns, the principal sum of
______________ Dollars on __________, 2006.

Interest Payment Dates: May 15 and November 15
Record Dates: May 1 and November 1

Additional provisions of this Security are set forth on the reverse
hereof.

IN WITNESS WHEREOF, the Company has caused this Security to be
signed manually or by facsimile by its duly authorized officers.

Date:

CALPINE CORPORATION

By: _______________________________
Name:
Title:

TRUSTEE'S CERTIFICATE
OF AUTHENTICATION:

Fleet National Bank, as
Trustee, certifies that
this is one of the Securities
referred to in the Indenture. (SEAL)

By: _________________________
Authorized Signature

================================================================================

B-2
<PAGE> 116
(Form of Back of Exchange Security)

CALPINE CORPORATION
10 1/2% SENIOR NOTE DUE 2006

(1) Interest. Calpine Corporation, a California corporation
(such corporation, and its successors and assigns under the Indenture referred
to below, being herein called the "Company"), promises to pay interest on the
principal amount of this Security at 10 1/2%* per annum. The Company will pay
interest semiannually on May 15 and November 15 of each year. Interest on the
Securities will accrue from the most recent date to which interest has been paid
or, if no interest has been paid, from May 16, 1996. Interest will be computed
on the basis of a 360-day year consisting of twelve 30-day months.

(4) Indenture. The Company issued the Securities under an
Indenture dated as of May 16, 1996 (the "Indenture") between the Company and the
Trustee. The Securities are unsecured general obligations of the Company limited
to $180,000,000 in aggregate principal amount. The terms of the Securities
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939 (15 U.S. Code Sections
77aaa-77bbbb) (the "TIA"). Capitalized terms used herein but not defined herein
are used as defined in the Indenture. The Securities are subject to all such
terms, and Securityholders are referred to the Indenture and the TIA for a
statement of such terms.

- --------
* 11% if the exchange offer is not consummated before November 13, 1996.

B-3
<PAGE> 117
(5) Optional Redemption. Except as set forth in the following
paragraph, the Company may not redeem the Securities prior to May 15, 2001. On
and after such date, the Company may redeem the Securities at any time as a
whole, or from time to time in part, at the following redemption prices
(expressed in percentages of principal amount), plus accrued interest to the
redemption date, if redeemed during the 12-month period beginning May 15,

<TABLE>
<CAPTION>
Year %
---- -
<S> <C>
2001 . . . . . . . . . . 105.250
2002 . . . . . . . . . . 102.625
2003, and thereafter . . . 100.000
</TABLE>

(7) Denominations; Transfer; Exchange. The Securities are in
registered form without coupons in denominations of $1,000 and any integral
multiple thereof. The transfer of Securities may be registered and Securities
may be exchanged as provided in the Indenture. The Registrar may require a
Holder, among other things, to furnish appropriate endorsements and transfer
documents and to pay any taxes and fees required by law or permitted by the
Indenture. The Registrar need not exchange or register the transfer of any
Security or portion of a Security selected for redemption (except, in the case
of a Security to be redeemed in part, the portion thereof not to be redeemed) or
any Securities for a period of 15 days before a selection of Securities to be
redeemed, or 15 days before an interest payment date.

B-4
<PAGE> 118
(9) Defeasance. Subject to certain conditions, the Company at
any time may terminate some or all of its obligations under the Securities and
the Indenture if the Company deposits with the Trustee money and/or U.S.
Government Obligations for the payment of principal and interest on the
Securities to redemption or maturity, as the case may be.

(13) Trustee Dealings with Company. Subject to the provisions
of the TIA, the Trustee under the Indenture, in its individual or any other
capacity, may make loans to, accept deposits from, and perform services for the
Company or its Affiliates, and may otherwise deal with the Company or its
Affiliates, as if it were not Trustee. The Trustee will initially be Fleet
National Bank.

B-5
<PAGE> 119
waives and releases all such liability. The waiver and release are part of the
consideration for the issue of the Securities.

(15) Authentication. This Security shall not be valid until
authenticated by the manual signature of an authorized signatory of the Trustee
or an authenticating agent.

B-6
<PAGE> 120
ASSIGNMENT FORM

To assign this Security, fill in the form below:
I or we assign and transfer this Security to

(Insert assignee's soc. sec or tax I.D. no.)

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

- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)

and irrevocably appoint agent to transfer this
Security on the books of the Company. The agent may substitute another to act
for him.

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

Dated: Signed:
------------ ----------------------

----------------------
(Sign exactly as your name
appears on the other side
of this Security)

Signature Guarantee:
-----------------------------------------------------------

================================================================================

OPTION OF HOLDER TO ELECT PURCHASE FORM

If you wish to elect to have this Security purchased by the Company
pursuant to Section 3.8 or 3.12 of the Indenture, check this box: / /

If you wish to elect to have only part of this Security purchased by
the Company pursuant to Section 3.8 or 3.12 of the Indenture, state the amount:
$

*As set forth in the Indenture, any purchase pursuant to Section 3.12
is subject to proration in the event the offer is oversubscribed.

Dated: Signed:
------------ ----------------------

----------------------
(Sign exactly as your name
appears on the other side
of this Security)

Signature Guarantee:
------------------------------------------------------

B-7
<PAGE> 121
EXHIBIT C

Form of Certificate

Fleet National Bank
777 Main Street
Hartford, Connecticut 06115
Attention: Corporate Trust Department

Calpine Corporation
50 West San Fernando Street
San Jose, California 95113
Attention: Corporate Secretary

Re: Calpine Corporation (the "Company")
10 1/2% Senior Notes Due 2006 (the "Securities")

Dear Sirs:

This letter relates to U.S. $_________ principal amount of
Securities represented by a Security (the "Legended Security") which bears a
legend outlining restrictions upon transfer of such Legended Security. Pursuant
to Section 2.1(b) of the Indenture (the "Indenture") dated as of May 16, 1996
relating to the Securities, we hereby certify that we are (or we will hold such
securities on behalf of) a person outside the United States to whom the
Securities could be transferred in accordance with Rule 904 of Regulation S
promulgated under the Securities Act of 1933, as amended. Accordingly, you are
hereby requested to exchange the Legended Security for an unlegended Security
representing an identical principal amount of Securities, all in the manner
provided for in the Indenture.

You and the Company are entitled to rely upon this letter and
are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby. Terms used in this certificate have
the meanings set forth in Regulation S.

Very truly yours,

[Name of Securityholder]

By:____________________
Authorized Signature

C-1
<PAGE> 122
EXHIBIT D

Form of Certificate to Be
Delivered in Connection with
Transfers to Non-QIB Accredited Investors

____________, ____

Fleet National Bank
777 Main Street
Hartford, Connecticut 06115
Attention: Corporate Trust Department

Calpine Corporation
50 West San Fernando Street
San Jose, California 95113
Attention: Corporate Secretary

Re: Calpine Corporation (the "Company")
10 1/2% Senior Notes Due 2006 (the "Securities")

Dear Sirs:

In connection with our proposed purchase of $______ aggregate
principal amount of the Securities, we confirm that:

1. We understand that any subsequent transfer of the
Securities is subject to certain restrictions and conditions set forth
in the Indenture dated as of May 16, 1996 relating to the Securities
(the "Indenture") and the undersigned agrees to be bound by, and not to
resell, pledge or otherwise transfer the Securities except in
compliance with, such restrictions and conditions and the Securities
Act of 1933, as amended (the "Securities Act").

2. We understand that the offer and sale of the Securities
have not been registered under the Securities Act, and that the
Securities may not be offered or sold except as permitted in the
following sentence. We agree, on our own behalf and on behalf of any
accounts for which we are acting as hereinafter stated, that if we
should sell any Securities, we will do so only (A) to the Company or
any subsidiary thereof, (B) in accordance with Rule 144A under the
Securities Act to a "qualified institutional buyer" (as defined
therein), (C) to an institutional "accredited investor" (as defined
below) that, prior to such transfer, furnishes (or has furnished on its
behalf by a U.S. broker-dealer) to you and to the Company a signed
letter substantially in the form of this letter, (D) outside the United
States in accordance with Rule 904 of Regulation

D-1
<PAGE> 123
S under the Securities Act, (E) pursuant to the exemption from
registration provided by Rule 144 under the Securities Act, or (F)
pursuant to an effective registration statement under the Securities
Act, and we further agree to provide to any person purchasing any of
the Securities from us a notice advising such purchaser that resales of
the Securities are restricted as stated herein.

3. We understand that, on any proposed resale of any
Securities, we will be required to furnish to you and the Company such
certifications, legal opinions and other information as you and the
Company may reasonably require to confirm that the proposed sale
complies with the foregoing restrictions. We further understand that
the Securities purchased by us will bear a legend to the foregoing
effect.

4. We are an institutional "accredited investor" (as defined
in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities
Act) and have such knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of our
investment in the Securities, and we and any accounts for which we are
acting are each able to bear the economic risk of our or its
investment.

5. We are acquiring the Securities purchased by us for our own
account or for one or more accounts (each of which is an institutional
"accredited investor") as to each of which we exercise sole investment
discretion and the amount of Senior Notes so being acquired is at least
$250,000.

You are entitled to rely upon this letter and are irrevocably
authorized to produce this letter or a copy hereof to any interested party in
any administrative or legal proceedings or official inquiry with respect to the
matters covered hereby.

Very truly yours,

[Name of Transferee]

By:_____________________
Authorized Signature

D-2
<PAGE> 124
EXHIBIT E

Form of Certificate to Be Delivered
in Connection with Transfers
Pursuant to Regulation S

___________, ____

Fleet National Bank
777 Main Street
Hartford, Connecticut 06115
Attention: Corporate Trust Department

Calpine Corporation
50 West San Fernando Street
San Jose, California 95113
Attention: Corporate Secretary

Re: Calpine Corporation (the "Company")
10 1/2% Senior Notes Due 2006 (the "Securities")

Dear Sirs:

In connection with our proposed sale of $___________ aggregate
principal amount of the Securities, we confirm that such sale has been effected
pursuant to and in accordance with Regulation S under the Securities Act of
1933, as amended, and, accordingly, we represent that:

(1) the offer of the Securities was not made to a person in
the United States;

(2) at the time the buy order was originated, the transferee
was outside the United States or we and any person acting on our behalf
reasonably believed that the transferee was outside the United States;

(3) no directed selling efforts have been made by us in the
United States in contravention of the requirements of Rule 903(b) or
Rule 904(b) of Regulation S, as applicable; and

(4) the transaction is not part of a plan or scheme to evade
the registration requirements of the U.S. Securities Act of 1933.

E-1
<PAGE> 125
You and the Company are entitled to rely upon this letter and are irrevocably
authorized to produce this letter or a copy hereof to any interested party in
any administrative or legal proceedings or official inquiry with respect to the
matters covered hereby. Terms used in this certificate have the meanings set
forth in Regulation S.

Very truly yours,

[Name of Transferor]

By:_______________________
Authorized Signature

E-2

<PAGE> 1
EXHIBIT 5.1

BROBECK, PHLEGER & HARRISON LLP
ONE MARKET
SPEAR TOWER
SAN FRANCISCO. CALIFORNIA 94105
TELEPHONE: (415) 442-0900
FACSIMILE: (415) 442-1010

June 17, 1996

Calpine Corporation
50 West San Fernando Street
San Jose, California 95113

Ladies and Gentlemen:

We have acted as counsel to Calpine Corporation, a California
corporation (the "Company"), in connection with its registration of $180,000,000
of 10-1/2% Senior Notes Due 2006 (the "Senior Notes") proposed to be issued by
the Company as described in the Company's Registration Statement on Form S-4,
filed with the Securities and Exchange Commission under the Securities Act of
1933, as amended (the "Registration Statement").

In connection with this opinion, we have examined and relied
upon the Registration Statement and related Prospectus, the Company's Articles
of Incorporation, the Company's Bylaws and the originals or copies certified to
our satisfaction of such records, documents, certificates, memorandum or other
instruments as in our judgment are necessary or appropriate to enable us to
render the opinion expressed below.

On the basis of the foregoing, and in reliance thereon, we are
of the opinion that the Senior Notes have been duly authorized, and when sold
and issued by the Company, will be validly issued, fully paid and nonassessable.

We consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the Prospectus which is part of the Registration Statement.

Very truly yours,

BROBECK, PHLEGER & HARRISON LLP

<PAGE> 1
EXHIBIT 10.8.19

REGISTRATION RIGHTS AGREEMENT

Dated as of May 13, 1996

by and between

CALPINE CORPORATION

and

MORGAN STANLEY & CO. INCORPORATED

CS FIRST BOSTON CORPORATION

GOLDMAN, SACHS & CO.

SCOTIA CAPITAL MARKETS (USA) INC.

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

10 1/2% Senior Notes Due 2006
<PAGE> 2
REGISTRATION RIGHTS AGREEMENT

This Registration Rights Agreement (the "Agreement") is made
and entered into as of May 13, 1996, by and among Calpine Corporation, a
California corporation (the "Company"), and Morgan Stanley & Co. Incorporated,
CS First Boston Corporation, Goldman, Sachs & Co., and Scotia Capital Markets
(USA) Inc. (the "Purchasers").

This Agreement is made pursuant to the Placement Agreement,
dated of even date herewith (the "Placement Agreement"), between the Company and
the Purchasers, which provides for the sale by the Company to the Purchasers of
an aggregate of $180,000,000 principal amount of the Company's 10 1/2% Senior
Notes Due 2006 (the "Senior Notes"). In order to induce the Purchasers to enter
into the Placement Agreement, the Company has agreed to provide the registration
rights set forth in this Agreement. The execution of this Agreement is a
condition to the Closing under the Placement Agreement.

The parties hereby agree as follows:

1. Definitions

Capitalized terms used herein without definition shall have
their respective meanings set forth in the Placement Agreement. As used in this
Agreement, the following terms shall have the following meanings:

Advice: See Section 4(o).

Closing Date: May 16, 1996, or such other date as may be
agreed upon for the sale and purchase of the Senior Notes pursuant to the
Placement Agreement.

Company: Calpine Corporation, a California corporation.

Exchange Act: The Securities Exchange Act of 1934, as amended,
and the rules and regulations of the SEC promulgated thereunder.

Exchange Offer: The exchange offer by the Company of Exchange
Notes for Registrable Securities pursuant to Section 3(d) hereof.

Exchange Offer Registration: A registration under the
Securities Act effected pursuant to Section 3(d) hereof.

2.
<PAGE> 3
Exchange Offer Registration Statement: An exchange offer
registration statement on Form S-4 or Form S-1 (or, if applicable, on another
appropriate form) and all amendments and supplements to such registration
statement, in each case including the Prospectus contained therein, all exhibits
thereto and all material incorporated by reference therein.

Exchange Notes: Securities issued by the Company under an
indenture containing terms identical to the Senior Notes (except that such
Exchange Notes (i) shall have been issued on an Exchange Offer and (ii) shall
have an interest rate of 10 1/2% per annum (11% per annum if such Exchange Offer
is not consummated by November 13, 1996), without provision for adjustment as
provided in paragraph 1 on the reverse of the Senior Notes), to be offered to
holders of Senior Notes in exchange for Senior Notes pursuant to the Exchange
Offer.

Indenture: The Indenture, dated as of May ___, 1996, between
the Company and Fleet National Bank, as Trustee, pursuant to which the Senior
Notes are being issued, as amended or supplemented from time to time in
accordance with the terms thereof.

Prospectus: The prospectus included in any Registration
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A), as amended or supplemented
by any prospectus supplement, with respect to the terms of the offering of any
portion of the Registrable Securities covered by such Registration Statement or
of the Exchange Notes, as the case may be, and all other amendments and
supplements to the Prospectus, including post-effective amendments and all
material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.

Registrable Securities: All Senior Notes which are Restricted
Securities.

Registration Expenses: See Section 5 hereof.

Registration Statement: Any registration statement of the
Company which covers any of the Exchange Notes or Registrable Securities
pursuant to the provisions of this Agreement, including the Prospectus,
amendments and supplements to such registration statement, including
post-effective amendments, all exhibits, and all material incorporated by
reference or deemed to be incorporated by reference in such registration
statement.

Restricted Securities: Any and all Senior Notes upon original
issuance thereof and at all times subsequent thereto

3.
<PAGE> 4
until, as to any Senior Note, (i) the sale of such Senior Note has been
effectively registered under the Securities Act and such Senior Note has been
disposed of in accordance with the Registration Statement relating thereto or
(ii) it is distributed to the public pursuant to Rule 144(k) (or any similar
provision then in force, but not Rule 144A) under the Securities Act or (iii) an
Exchange Offer Registration has been declared effective and such Senior Note has
been exchanged for an Exchange Note by a person who is not then deemed to be an
Underwriter as defined in Section 2(11) of the Securities Act.

SEC: The Securities and Exchange Commission.

Securities Act: The Securities Act of 1933, as amended, and
the rules and regulations promulgated by the SEC thereunder.

Shelf Registration: See Section 3 hereof.

Special Counsel: Skadden, Arps, Slate, Meagher & Flom, special
counsel to the Purchasers or such other special counsel as may be designated by
the holders of a majority in aggregate principal amount of Registrable
Securities outstanding.

TIA: The Trust Indenture Act of 1939, as amended.

2. Securities Subject to This Agreement; Holders

(a) The securities entitled to the benefits of this
Agreement are the Registrable Securities.

(b) A Person is deemed to be a holder of Registrable
Securities whenever such Person beneficially owns Registrable Securities;
provided, that only Registrable Securities of holders who are registered holders
of Registrable Securities shall be counted for purposes of calculating any
proportion of holders of Registrable Securities entitled to take action or give
notice pursuant to this Agreement.

3. Shelf Registrations; Exchange Offers

(a) Shelf Registrations. As promptly as practicable
and in no event later than October l, 1996, the Company shall prepare and file
with the SEC a Registration Statement under the Securities Act for an offering
to be made on a continuous basis pursuant to Rule 415 (or any similar rule that
may be adopted by the SEC) under the Securities Act covering all the Registrable
Securities (the "Shelf Registration").

(b) The Shelf Registration shall be on Form S-1 or
another appropriate form permitting registration of such

4.
<PAGE> 5
Registrable Securities for resale by such holders in the manner or manners
designated by them.

(c) The Company shall use its best efforts to cause
the Shelf Registration to become effective under the Securities Act in
accordance with Section 3(a) hereof and shall keep the Shelf Registration
continuously effective for a period of three years from the Closing Date or such
shorter period which will terminate when all Registrable Securities covered by
the Shelf Registration are no longer Restricted Securities. The Company shall
also supplement or make amendments to any Shelf Registration if required by the
rules, regulations or instructions applicable to the registration form used by
the Company or if required by the Securities Act or if reasonably requested by
holders of a majority of the principal amount of the Registrable Securities then
outstanding covered by the Shelf Registration.

(d) Exchange Offer. Notwithstanding the provisions of
Section 3(a), at the option of the Company, to the extent any applicable law or
applicable interpretation of the staff of the SEC would permit holders
thereafter to resell Exchange Notes without restriction, the Company may, in
lieu of complying with Section 3 (a), cause to be filed an Exchange Offer
Registration Statement covering the offer by the Company to the holders of
Senior Notes to exchange all of the Registrable Securities for Exchange Notes,
to have such Exchange Offer Registration Statement declared effective by the SEC
not later than November 13, 1996 and to have such Registration Statement remain
effective until the closing of the Exchange Offer. The Company shall commence
the Exchange Offer promptly after the Exchange Offer Registration Statement has
been declared effective by the SEC by mailing the related exchange offer
Prospectus and accompanying documents to each holder of Senior Notes stating, in
addition to such other disclosures required by applicable law:

(i) that the Exchange Offer is being
made pursuant to this Agreement and that all Registrable Securities
validly tendered will be accepted for exchange;

(ii) the date of acceptance for exchange
(which shall be a period of at least 60 days from the date such notice
is mailed) (the "Exchange Date");

(iii) that any Registrable Security not
tendered will remain outstanding and continue to accrue interest but,
except as set forth in the last paragraph of this Section 3(d), will
not retain any rights under this Agreement;

5.
<PAGE> 6
(iv) that holders of Senior Notes
electing to have a Registrable Security exchanged pursuant to the
Exchange Offer will be required to surrender such Registrable Security,
together with the enclosed letters of transmittal, to the institution
and at the address (located in the Borough of Manhattan, The City of
New York) specified in the notice prior to the close of business on the
last Exchange Date; and

(v) that holders of Senior Notes will be
entitled to withdraw their election not later than the close of
business on the last Exchange Date, by sending to the institution and
at the address (located in the Borough of Manhattan, The City of New
York) specified in the notice a telegram, telex, facsimile transmission
or letter setting forth the name of such holder, the principal amount
of Registrable Securities delivered for exchange and a statement that
such holder is withdrawing its election to have such Senior Notes
exchanged.

As soon as practicable after the Exchange Date, the Company
shall:

(i) accept for exchange Registrable
Securities or portions thereof tendered and not validly withdrawn
pursuant to the Exchange Offer; and

(ii) deliver, or cause to be delivered,
to the Trustee for cancellation all Registrable Securities or portions
thereof so accepted for exchange by the Company and issue, and cause
the trustee under the indenture governing the Exchange Notes to
promptly authenticate and mail to each holder, a new Exchange Note, as
the case may be, equal in principal amount to the principal amount of
the Registrable Securities surrendered by such Holder.

The Company shall use its best efforts to complete the
Exchange Offer as provided above and shall comply with the applicable
requirements of the Securities Act, the Exchange Act and other applicable laws
in connection with the Exchange Offer. The Exchange Offer shall not be subject
to any conditions, other than that the Exchange Offer does not violate
applicable law or any applicable interpretation of the staff of the SEC. The
Company shall inform the Purchasers of the names and addresses of the holders of
Senior Notes to whom the Exchange Offer is made, and the Purchasers shall have
the right to contact such holders and otherwise facilitate the tender of
Registrable Securities in the Exchange Offer.

In connection with the Exchange Registration, the Company will
provide a letter to the staff of the SEC that

6.
<PAGE> 7
contains statements and representations substantially in the form set forth in
Mary Kay Cosmetics, Inc. (no-action letter available June 5, 1991), Morgan
Stanley & Co. Incorporated (no-action letter available June 5, 1991), Warnaco.
Inc. (no-action letter available October 11, 1991), Shearman & Sterling
(no-action letter available July 2, 1993), Grupo Financiero InverMexico, S.A.
(no-action letter available April 4, 1995) and no-action letters to similar
effect.

As provided in the Indenture, in the event that neither the
Shelf Registration nor the Exchange Offer Registration Statement is declared
effective by November 13, 1996, the interest rate on the Senior Notes shall be
permanently increased, beginning at such time, by 1/2% per annum.

4. Registration Procedures

In connection with the Company's registration obligations
pursuant to Section 3 hereof, the Company shall use its best efforts to effect
such registrations to permit the consummation of the Exchange Offer or the sale
of such Registrable Securities in accordance with the intended method or methods
of disposition thereof, and pursuant thereto the Company shall as expeditiously
as possible:

(a) prepare and file with the SEC, within the time
period specified in Section 3, a Registration Statement or Registration
Statements on any appropriate form under the Securities Act, which form, in the
case of a Shelf Registration, shall be available for the sale of the Registrable
Securities by the holders thereof in accordance with the intended method or
methods of distribution thereof, and use its best efforts to cause each such
Registration Statement to become effective and remain effective as provided
herein; provided, however, that before filing a Registration Statement or
Prospectus or any amendments or supplements thereto (including documents which
would be incorporated or deemed to be incorporated therein by reference and
amendments to such documents, other than documents required to be filed pursuant
to the Exchange Act), the Company shall furnish to the Special Counsel copies of
the Registration Statement or Prospectus and all such documents in the form
proposed to be filed at least five business days prior thereto and with respect
to amendments or supplements thereof, at least two business days prior thereto,
which documents will be subject to the review of the Special Counsel, and the
Company shall not file any such Registration Statement or amendment there to or
any Prospectus or any supplement thereto (including such documents which, upon
filing, would be incorporated or deemed to be incorporated by reference therein
and amendments to such documents, other than documents required to be filed
pursuant to the Exchange Act) to which the Special Counsel shall reasonably

7.
<PAGE> 8
object on a timely basis, unless the Company is advised by its counsel that such
Registration Statement or amendment thereto or any Prospectus or supplement
thereto is required to be filed by applicable law;

(b) prepare and file with the SEC such amendments and
post-effective amendments to each Registration Statement as may be necessary to
keep such Registration Statement continuously effective for the applicable
period; cause the related Prospectus to be supplemented by any required
Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424
(or any similar provisions then in force) under the Securities Act;

(c) notify the selling holders of Registrable
Securities (except in the cases of clauses (ii) and (iii) hereof) and their
Special Counsel promptly, and (if requested by any such Person) confirm such
notice in writing, (i) when a Prospectus or any Prospectus supplement or
post-effective amendment related to such Registrable Securities has been filed,
and, with respect to a Registration Statement or any post-effective amendment
related to such Registrable Securities, when the same has become effective, (ii)
of the receipt of any comments from the SEC, (iii) of any request by the SEC for
amendments or supplements to a Registration Statement or related Prospectus or
for additional information, (iv) of the issuance by the SEC of any stop order
suspending the effectiveness of a Registration Statement or the initiation of
any proceedings for that purpose, (v) if at any time the representations and
warranties of the Company contained in any agreement contemplated by paragraph
(1) below in connection with the sale of Restricted Securities by selling
holders thereof cease to be true and correct, (vi) of the receipt by the Company
of any notification with respect to the suspension of the qualification or
exemption from qualification of any of the Registrable Securities for sale or
exchange in any jurisdiction of the United States of America or the initiation
of any proceeding for such purpose, (vii) of the happening of any event which
makes any statement of a material fact made in such Registration Statement or
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference untrue or which requires the making of any changes in a
Registration Statement or related Prospectus so that such documents will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading, and
(viii) of the Company's determination that a post-effective amendment to a
Registration Statement would be appropriate;

(d) use every reasonable effort to obtain the
withdrawal of any order suspending the effectiveness of a Registration Statement
or the lifting of any suspension of the

8.
<PAGE> 9
qualification (or exemption from qualification) of any of the Registrable
Securities for sale or exchange in any jurisdiction of the United States of
America, as promptly as practicable;

(e) if reasonably requested by any holder of
Registrable Securities covered by a Registration Statement, (i) promptly
incorporate in a Prospectus supplement or post-effective amendment such
information as such holder reasonably requests to be included therein as may be
required by applicable law, (ii) make all required filings of such Prospectus
supplement or such post-effective amendment as soon as the Company has received
notification of the matters to be incorporated in such Prospectus supplement or
such post-effective amendment, and (iii) supplement or make amendments to any
Registration Statement if reasonably requested by any holder of Registrable
Securities covered by such Registration Statement as may be required by
applicable law;

(f) in the case of a Shelf Registration, furnish to
each selling holder of Registrable Securities and the Special Counsel, without
charge, at least one conformed copy of the Registration Statement or Statements
and any post-effective amendment thereto, including financial statements and
schedules, all documents incorporated therein by reference or deemed
incorporated therein by reference and all exhibits (including those previously
furnished or incorporated by reference), at the earliest practicable time under
the circumstances after the filing of such documents with the SEC;

(g) in the case of a Shelf Registration, deliver to
each selling holder of Registrable Securities and the Special Counsel, without
charge, as many copies of the Prospectus or Prospectuses (including each
preliminary prospectus) and any amendment or supplement thereto as such Persons
may reasonably request; the Company consents to the use of such Prospectus or
any amendment or supplement thereto in accordance with applicable law by each of
the selling holders of Registrable Securities in connection with the offering
and sale of the Registrable Securities covered by such Prospectus or any
amendment or supplement thereto in accordance with applicable law;

(h) prior to any public offering or exchange of
Registrable Securities, to use its best efforts to register or qualify or
cooperate with the selling holders of Registrable Securities and their Special
Counsel in connection with the registration or qualification (or exemption from
such registration or qualification) of such Registrable Securities for offer and
sale or exchange, as the case may be, under the securities or blue sky laws of
such state or local jurisdictions as any seller reasonably requests in writing;
keep each such registration or qualification (or exemption therefrom) effective

9.
<PAGE> 10
during the period such Registration Statement is required to be kept effective
and do any and all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Registrable Securities covered by the
applicable Registration Statement; provided, however, that the Company will not
be required to (A) qualify generally to do business in any jurisdiction where it
is not then so qualified, (B) take any action which would subject it to general
service of process in any such jurisdiction where it is not then so subject or
(C) register or qualify securities prior to the effective date of any
Registration Statement under Section 3 hereof;

(i) in the case of a Shelf Registration, cooperate
with the selling holders of Registrable Securities to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be sold, which certificates shall not bear any restrictive legends; and enable
such Registrable Securities to be in such denominations and registered in such
names, in all cases consistent with the requirements set forth in the Indenture,
as the holders may request;

(j) subject to the exceptions contained in (A), (B)
and (C) of subsection (h) hereof, cause the Registrable Securities covered by
the applicable Registration Statement to be registered with or approved by such
other federal, state and local governmental regulatory agencies or authorities
in the United States as may be necessary to enable the seller or sellers thereof
to consummate the disposition of such Registrable Securities and cooperate with
each seller of Registrable Securities in connection with any filings required to
be made with the National Association of Securities Dealers, Inc.;

(k) upon the occurrence of any event contemplated by
paragraph 4(c) (vii) or 4(c) (viii) above, as promptly as practicable
thereafter, prepare and file with the SEC a supplement or post-effective
amendment to the applicable Registration Statement or a supplement to the
related Prospectus or any document incorporated therein by reference or file any
other required document so that, as thereafter delivered to the purchasers of
the Registrable Securities being sold thereunder, such Prospectus will not
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading;

(l) in the case of a Shelf Registration, enter into
such customary agreements and take all such other actions in connection
therewith (including those reasonably requested by the holders of a majority of
the Registrable Securities being sold)

10.
<PAGE> 11
in order to expedite or facilitate the disposition of such Registrable
Securities including, but not limited to, an underwritten offering and in such
connection, (i) to the extent possible, make such representations and warranties
to the holders and any underwriters of such Registrable Securities with respect
to the business of the Company and its subsidiaries, the Registration Statement,
Prospectus and documents incorporated by reference or deemed incorporated by
reference, if any, in each case, in form, substance and scope as are customarily
made by issuers to underwriters in underwritten offerings and confirm the same
if and when requested, (ii) obtain opinions of counsel to the Company (which
counsel and opinions, in form, scope and substance, shall be reasonably
satisfactory to Special Counsel) addressed to each selling holder and
underwriter of Registrable Securities, covering the matters customarily covered
in opinions requested in underwritten offerings, (iii) obtain "cold comfort"
letters from the independent certified public accountants of the Company (and,
if necessary, any other certified public accountant of any subsidiary of the
Company, or of any business acquired by the Company for which financial
statements and financial data is or is required to be included in the
Registration Statement) addressed to each selling holder and underwriter of
Registrable Securities, such letters to be in customary form and covering
matters of the type customarily covered in "cold comfort" letters in connection
with underwritten offerings, and (iv) deliver such documents and certificates as
may be reasonably requested by the holders of a majority in principal amount of
the Registrable Securities being sold to evidence the continued validity of the
representations and warranties of the Company made pursuant to clause (i) above
and to evidence compliance with any customary conditions contained in an
underwriting agreement;

(m) in the case of a Shelf Registration, make
available for inspection by a representative of the holders of Registrable
Securities being sold, Special Counsel and an accountant retained by such
selling holders, in a manner designed to permit underwriters to satisfy their
due diligence investigation under the Securities Act, all financial and other
records, pertinent corporate documents and properties of the Company, and cause
the officers, directors and employees of the Company and its subsidiaries to
supply all information reasonably requested by any such representative, attorney
or accountant in connection with such registration; provided, however, that any
records, information or documents that are designated by the Company as
confidential at the time of delivery of such records, information or documents
shall be kept confidential by such persons, unless (i) such records, information
or documents are in the public domain or otherwise publicly available, (ii)
disclosure of such records, information or documents is required by court or
administrative order, (iii) disclosure of such records, information or
documents, in the written opinion of

11.
<PAGE> 12
counsel to such person, is otherwise required by law (including, without
limitation, pursuant to the requirements of the Securities Act) or (iv)
disclosure of such records, information or document is necessary to avoid or
correct a misstatement or omission in the Registration Statement, Prospectus
supplement or any post-effective amendment;

(n) provide an indenture trustee for the Registrable
Securities or Exchange Notes, as the case may be, and cause the indenture (or
the indenture governing the Exchange Notes) to be qualified under the TIA not
later than the effective date of any registration; and in connection therewith,
cooperate with the trustee to effect such changes to such indenture as may be
required for such indenture to be so qualified in accordance with the terms of
the TIA and execute, and use its best efforts to cause the trustee to execute,
all documents as may be required to effect such changes, and all other forms and
documents required to be filed with the SEC to enable such indenture to be so
qualified in a timely manner; and

(o) comply with all applicable rules and regulations
of the SEC and, in the case of a Shelf Registration, make generally available to
its security holders an earnings statement satisfying the provisions of Section
11(a) of the Securities Act and Rule 158 thereunder no later than 45 days after
the end of any 12-month period (or 90 days after the end of any 12-month period
if such period is a fiscal year), commencing on the first day of the first
fiscal quarter of the Company commencing after the effective date of a
Registration Statement, which statement shall cover said 12-month period.

The Company may require each seller of Registrable Securities
under a Shelf Registration to furnish to the Company such information regarding
the distribution of such Registrable Securities as the Company may from time to
time reasonably request in writing and each holder in acquiring such Registrable
Securities agrees to supply such information to the Company promptly upon such
request.

Each holder of Registrable Securities agrees by acquisition of
such Registrable Securities that, in the event of a Shelf Registration, upon
receipt of any notice from the Company of the happening of any event of the kind
described in Section 4(c) (iii), 4(c)(iv), 4(c)(vi), 4(c)(vii) or 4(c)(viii)
hereof, such holder will forthwith discontinue disposition of such Registrable
Securities covered by such Registration Statement or Prospectus until such
holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 4(k) hereof, or until it is advised in writing (the
"Advice") by the Company that the use of the applicable Prospectus may be
resumed, and has received copies of any additional or

12.
<PAGE> 13
supplemental filings which are incorporated or deemed to be incorporated by
reference in such Prospectus.

5. Registration Expenses

The Company shall pay all fees and expenses incident to the
performance of or compliance with this Agreement by the Company including,
without limitation, (i) all SEC, stock exchange or National Association of
Securities Dealers, Inc. registration and filing fees, (ii) all fees and
expenses incurred in connection with compliance with state securities or blue
sky laws (including reasonable fees and disbursements of counsel for any
underwriters or holders in connection with blue sky qualification of any of the
Exchange Notes or Registrable Securities), (iii) all expenses of any persons in
preparing or assisting in preparing, word processing, printing and distributing
any Registration Statement, any Prospectus, any amendments or supplements
thereto, any underwriting agreements, securities sales agreements and other
documents relating to the performance of and compliance with this Agreement,
(iv) all rating agency fees and (v) the fees and disbursements of counsel for
the Company, Special Counsel to the holders of Registrable Securities and of the
independent public accountants of the Company, including the expenses of any
special audits or "cold comfort" letters required by or incident to such
performance and compliance, but excluding fees of counsel to the underwriters
and underwriting discounts and commissions and transfer taxes, if any, relating
to the sale or disposition of Registrable Securities by a holder of Registrable
Securities.

6. Indemnification

The Company agrees to indemnify and hold harmless the
Purchasers and each holder of Registrable Securities and each person, if any,
who controls the Purchasers or any holder of Registrable Securities within the
meaning of either Section 15 of the Securities Act or Section 20 of the Exchange
Act, from and against any and all losses, claims, damages and liabilities
(including, without limitation, any legal or other expenses reasonably incurred
in connection with defending or investigating any such action or claim) caused
by any untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement or any amendment thereof, any preliminary
prospectus or the Prospectus (as amended and supplemented if the Company shall
have furnished any amendments or supplements thereto), or caused by any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as such losses, claims, damages or liabilities are caused by any such
untrue statement or omission or alleged untrue statement or omission based upon
information relating to the

13.
<PAGE> 14
Purchasers or any holder of Registrable Securities furnished to the Company in
writing by such Purchasers or holder of Registrable Securities expressly for use
therein.

In connection with any Shelf Registration in which a holder of
Registrable Securities is participating, in furnishing information relating to
such holder of Registrable Securities to the Company in writing expressly for
use in such Registration Statement, any preliminary prospectus, the Prospectus
or any amendments or supplements thereto, the holders of such Registrable
Securities agree severally and not jointly, to indemnify and hold harmless the
Purchasers and each person, if any, who controls the Purchasers within the
meaning of either Section 15 of the Securities Act or Section 20 of the Exchange
Act and the Company, its directors, its officers who sign a Registration
Statement and each person, if any, who controls the Company within the meaning
of either such Section, from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment thereof,
any preliminary prospectus or the Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto), or caused
by any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
but only with reference to such information relating to such holder of
Registrable Securities furnished in writing by or on behalf of such holder of
Registrable Securities expressly for use in the Registration Statement, any
preliminary prospectus, the Prospectus or any amendments or supplements thereto.

The Purchasers agree, severally and not jointly, to indemnify
and hold harmless the Company, the holders of Registrable Securities, the
directors of the Company, the officers of the Company who sign the Registration
Statement and each person, if any, who controls the Company or any holder of
Registrable Securities within the meaning of either Section 15 of the Securities
Act or Section 20 of the Exchange Act from and against any and all losses,
claims, damages and liabilities (including, without limitation, any legal or
other expenses reasonably incurred in connection with defending or investigating
any such action or claim) caused by any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
amendment thereof, any preliminary prospectus or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto), or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or

14.
<PAGE> 15
necessary to make the statements therein not misleading, but only with reference
to information relating to the Purchasers furnished to the Company in writing
expressly for use in the Registration Statement, any preliminary prospectus, the
Prospectus or any amendments or supplements thereto.

In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to any of the three preceding paragraphs, such
person (the "indemnified party") shall promptly notify the person against whom
such indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
parties to any such proceeding (including any impleaded parties) include both
the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to the actual or
potential differing interests between them. It is understood that the
indemnifying party shall not, in respect of the legal expenses of any
indemnified party in connection with any proceeding or related proceedings in
the same jurisdiction, be liable for (a) the fees and expenses of more than one
separate firm (in addition to any local counsel) for the Purchasers and all
persons, if any, who control the Purchasers within the meaning of either Section
15 of the Securities Act or Section 20 of the Exchange Act, (b) the fees and
expenses of more than one separate firm (in addition to any local counsel) for
the Company, its directors, its officers who sign the Registration Statement and
each person, if any, who controls the Company within the meaning of either such
Section and (c) the fees and expenses of more than one separate firm (in
addition to any local counsel) for all holders of Registrable Securities and all
persons, if any, who control any holders of Registrable Securities within the
meaning of either such Section, and that all such fees and expenses shall be
reimbursed as they are incurred. In such case involving the Purchasers and such
control persons of the Purchasers, such firm shall be designated in writing by
Morgan Stanley & Co. Incorporated. In such case involving the holders of
Registrable Securities and such controlling persons of holders of Registrable
Securities, such firm shall be designated in writing by holders of a majority in
aggregate principal amount of Registrable Securities. In all other cases, such
firm shall be

15.
<PAGE> 16
designated by the Company. The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent, but if
settled with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment. Notwithstanding
the foregoing sentence, if at any time an indemnified party shall have requested
an indemnifying party to reimburse the indemnified party for fees and expenses
of counsel as contemplated by the second and third sentences of this paragraph,
the indemnifying party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent, provided that (i) such
settlement is entered into more than 30 days after receipt by such indemnifying
party of the aforesaid request and (ii) such indemnifying party shall not have
reimbursed the indemnified party in accordance with such request prior to the
date of such settlement unless the indemnifying party has contested such
obligation and provides reasonable assurances that such payment can be made upon
resolution of such dispute. No indemnifying party shall, without the prior
written consent of the indemnified party, effect any settlement of any pending
or threatened proceeding in respect of which any indemnified party is or could
have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such proceeding.

If the indemnification provided for in the first, second or
third paragraph of this Section 6 is unavailable to an indemnified party or
insufficient in respect of any losses, claims, damages or liabilities referred
to therein, then each indemnifying party under such paragraph, in lieu of
indemnifying such indemnified party thereunder, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages or liabilities in such proportion as is appropriate to reflect the
relative fault of the indemnifying party or parties on the one hand and of the
indemnified party or parties on the other hand in connection with the statements
or omissions that resulted in such losses, claims, damages or liabilities, as
well as any other relevant equitable considerations. The relative fault of the
holders of Registrable Securities on the one hand and the Purchasers on the
other hand shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the holders
of Registrable Securities or by the Purchasers and the parties, relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.

16.
<PAGE> 17
The parties hereto agree that it would not be just or
equitable if contribution pursuant to this Section 6 were determined by pro rata
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 6, no holder of Registrable
Securities shall be required to indemnify or contribute any amount in excess of
the amount by which the total price at which the Registrable Securities sold by
such holder of Registrable Securities and distributed to the public were offered
to the public exceeds the amount of any damages that such holder of Registrable
Securities has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The remedies provided for in this
Section 6 are not exclusive and shall not limit any rights or remedies which may
otherwise be available to any indemnified party at law or in equity.

The indemnity and contribution provisions contained in this
Section 6 shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of the Purchasers or any person controlling
the Purchasers, any holder of Registrable Securities or any person controlling
the holder of Registrable Securities, or the Company, its officers or directors
or any person controlling the Company.

7. Miscellaneous

(a) Remedies. In the event of a breach by the Company
of any of its obligations under this Agreement, each holder of Registrable
Securities, in addition to being entitled to exercise all rights granted by law,
including recovery of damages, will be entitled to specific performance of its
rights under this Agreement. The Company agrees that monetary damages would not
be adequate compensation for any loss incurred by reason of a breach by it of
any of the provisions of this Agreement and hereby further agrees that, in the
event of any action for specific performance in respect of such breach, they
shall waive the defense that a remedy at law would be adequate.

(b) No Inconsistent Agreements. The Company shall
not, on or after the date of this Agreement, enter into any

17.
<PAGE> 18
agreement with respect to its securities which is inconsistent with the rights
granted to the holders of Registrable Securities in this Agreement or otherwise
conflicts with the provisions hereof.

(c) Amendments and Waivers. The provisions of this
Agreement, including the provisions of this sentence, may not be amended,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given, unless the Company has obtained the written
consent of holders of a majority of the then outstanding aggregate principal
amount of Registrable Securities. Notwithstanding the foregoing, a waiver or
consent to depart from the provisions hereof with respect to a matter which
relates exclusively to the rights of holders of Registrable Securities whose
securities are being sold pursuant to a Registration Statement and which does
not directly or indirectly affect the rights of other holders of Registrable
Securities may be given by holders of at least a majority in aggregate principal
amount of the Registrable Securities being sold by such holders.

(d) Notices. All notices and other communications
provided or permitted hereunder shall be made in writing by hand-delivery,
registered first-class mail, telex, or telecopier:

(i) if to a holder of Registrable
Securities, at the most current address given by such holder to the
Company in accordance with the provisions of this Section 8(d), which
address initially is, with respect to the Purchasers, the address set
forth on the first page of the Placement Agreement; and

(ii) if to the Company, initially at its
address set forth on the first page of the Placement Agreement and
thereafter by such other address, notice of which is given in
accordance with the provision of this Section 8 (d).

All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; two business
days after being deposited in the mail, postage prepaid, if mailed; one business
day after being sent by next-day solvent air courier; when answered back, if
telexed; and when receipt acknowledged, if telecopied.

Copies of all such notices, demands or other communications
shall be concurrently delivered by the person giving the same to the Trustee
under the Indenture at the address specified in such Indenture.

18.
<PAGE> 19
(e) Successors and Assigns. This Agreement shall
inure to the benefit of and be binding upon the successors and assigns of each
of the parties, including without limitation and without the need for an express
assignment, subsequent holders of Registrable Securities.

(f) Counterparts. This Agreement may be executed in
any number of counterparts and by the parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.

(g) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.

(h) Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York, without
regard to principles of conflicts of laws.

(i) Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such
which may be hereafter declared invalid, void or unenforceable.

(j) Entire Agreement. This Agreement is intended by
the parties as a final expression of their agreement, and is intended to be a
complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein, with respect to the registration rights granted by the
Company with respect to the securities sold pursuant to the Purchase Agreement.
This Agreement supersedes all prior agreements and understandings between the
parties with respect to such subject matter.

(k) Securities Held by the Company or its Affiliates.
Whenever the consent or approval of holders of a specified percentage of
Registrable Securities is required hereunder,

19.
<PAGE> 20
Registrable Securities held by the Company or any of its affiliates (as such
term is defined in Rule 405 under the Securities Act) (other than the Purchasers
or subsequent holders of Registrable Securities if such subsequent holders are
deemed to be such affiliates solely by reason of their holding of such
Registrable Securities) shall not be counted in determining

20.
<PAGE> 21
whether such consent or approval was given by the holders of such required
percentage or amount.

IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.

CALPINE CORPORATION

By:
-----------------------------------------
Name:
Title:

MORGAN STANLEY & CO. INCORPORATED
CS FIRST BOSTON
GOLDMAN, SACHS & CO.
SCOTIA CAPITAL MARKETS (USA) INC.

BY: MORGAN STANLEY & CO.
INCORPORATED

By:
-----------------------------------------
Name:
Title:

21.

<PAGE> 1
Exhibit 21.1

CALPINE CORPORATION

LIST OF SUBSIDIARIES

Anderson Springs Energy Company
Bellingham Cogen, Inc.
Biogas Assets, Inc.
Biogas Development, Inc.
Calpine Power Services Company
Calpine Power Company
Calpine Project Investments, Inc.
Calpine Parlin Cogen, Inc.
Calpine Operating Plant Services, Inc.
Calpine Puma, Inc.
Calpine Philadelphia Cogen, Inc.
Calpine Agnews, Inc.
Calpine Thermal Power, Inc.
Calpine Vapor, Inc.
Calpine Sumas, Inc.
Calpine Sonoma, Inc.
Calpine Siskiyou Geothermal Partners, L.P.
Calpine Newark Cogen, Inc.
Calpine Securities Company, L.P.
Calpine Geysers Company, L.P.
Calpine Grays Ferry Cogen, Inc.
Calpine Fuels Corporation
Calpine Coso Development Company, Inc.
Calpine Monterey Cogeneraion, Inc.
Calpine Canadian Gas, Ltd.
Calpine Greenleaf Corporation
Calpine Artesia Cogen, Inc.
Calpine King City Cogen, Inc.
Calpine Hunters Point, L.P.
Calpine King City 2, Inc.
Calpine Jersey Cogen, Inc.
Calpine King City 1, Inc.
Calpine King City, LLC
CGL Two Corporation
CGL One Corporation
Cloverdale Geothermal Partners, L.P.

1
<PAGE> 2
Geothermal Energy Partners, L.P.
Greenleaf Unit One Associates, Inc.
Greenleaf Unit One Associates, a California Limited Partnership
Greenleaf Unit Two Associates, Inc.
Healdsburg Energy Company, L.P.
Modoc Power, Inc.
Mount Hoffman Geothermal Company, L.P.
Northwest Cogeneration, Inc.
OES, Inc.
Portsmouth Leasing Corporation
Santa Rosa Energy Company
Sonoma Geothermal Partners, L.P.
Sutter Dryers, Inc.
Thermal Power Company
Whatcom Cogeneration Partners L.P.

<PAGE> 1

EXHIBIT 23.2

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
Registration Statement.

ARTHUR ANDERSEN LLP

San Jose, California
June 14, 1996

II-9

<PAGE> 1

EXHIBIT 23.3

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated January 19, 1996, on our audits of the consolidated
financial statements of Sumas Cogeneration Company, L.P. and Subsidiary in the
Calpine Corporation Registration Statement (Form S-4) for the Registration of
10 1/2% Senior Notes Due 2006.

Moss Adams LLP

June 14, 1996

II-10

<PAGE> 1

EXHIBIT 23.4

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the inclusion in this Registration Statement on Form S-4 of
the following:

- our report dated February 3, 1995, except as to the information presented
in Note 7 for which the date is March 30, 1995, on our audits of the
combined financial statements of LFC No. 38 Corp. and Portsmouth Leasing
Corporation and Subsidiaries as of and for the years ended December 31,
1994 and 1993.

- our report dated February 3, 1995, except as to the information presented
in Note 6 for which the date is March 30, 1995, on our audits of the
consolidated financial statements of LFC No. 60 Corp. and Subsidiary as
of and for the years ended December 31, 1994 and 1993.

We also consent to the reference to our firm under the caption "EXPERTS".

Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania
June 14, 1996

II-11

<PAGE> 1

Exhibit 25

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

----------

FORM T-1

----------

STATEMENT OF ELIGIBILITY AND QUALIFICATION UNDER THE
TRUST INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE

----------

/ / CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(B)(2)

FLEET NATIONAL BANK
---------------------------------------------------------
(Exact name of trustee as specified in its charter)

Not applicable 04-317415
- ------------------------------- -----------------------------
(State of incorporation (I.R.S. Employer
if not a national bank) Identification No.)

One Monarch Place, Springfield, MA 01102
- ---------------------------------------- -----------------------------
(Address of principal executive offices) (Zip Code)

Pat Beaudry, 777 Main Street, Hartford, CT 06115 (203) 728-2065
--------------------------------------------------------------
(Name, address and telephone number of agent for service)

CALPINE CORPORATION
---------------------------------------------------
(Exact name of obligor as specified in its charter)

California 77-0031605
- ------------------------------- -----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

50 West San Fernando Street, San Jose, CA 95113
- ---------------------------------------- -----------------------------
(Address of principal executive offices) (Zip Code)

10-1/2% Senior Notes Due 2006
------------------------------------------------------------------
(Title of the indenture securities)

<PAGE> 2
Item 1. General Information.

Furnish the following information as to the trustee:

(a) Name and address of each examining or supervising authority to
which it is subject,

The Comptroller of the Currency,
Washington, D.C.

Federal Reserve Bank of Boston
Boston, Massachusetts

Federal Deposit Insurance Corporation
Washington, D.C.

(b) Whether it is authorized to exercise
corporate trust powers:

The trustee is so authorized.

Item 2. Affiliations with obligor and underwriter. If the obligor or
any underwriter for the obligor is an affiliate of the trustee,
describe each such affiliation.

None with respect to the trustee.

Item 16. List of exhibits.

List below all exhibits filed as a part of this statement of
eligibility and qualification.

(1) A copy of the Articles of Association of the trustee as
now in effect.

(2) A copy of the Certificate of Authority of the trustee
to do business.

(3) A copy of the Certification of Fiduciary Powers of the
trustee.

(4) A copy of the By-Laws of the trustee as now in effect.

(5) Consent of the trustee required by Section 321(b)
of the Act.

(6) A copy of the latest Consolidated Reports of Condition and
Income of the trustee published pursuant to law or the
requirements of its supervising or examining authority.

NOTES

In as much as this Form T-1 is filed prior to the ascertainment by the trustee
of all facts on which to base answers to Item 2, the answers to said Items are
based upon imcomplete information. Said Items may, however, be considered
correct unless amended by an amendment to this Form T-1.

<PAGE> 3

SIGNATURE

Pursuant to the requirements of the Trust Indenture Act of 1939,
the trustee, Fleet National Bank, a national banking association organized and
existing under the laws of the United States, has duly caused this statement of
of eligibility and qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of Hartford, and State of
Connecticut, on the 6th day of June, 1996.

FLEET NATIONAL BANK,
AS TRUSTEE

By: /s/
-------------------------
Michael M. Hopkins
Its Vice President

<PAGE> 4

EXHIBIT 1

ARTICLES OF ASSOCIATION
OF
FLEET NATIONAL BANK

FIRST. The title of this Association, which shall carry on the business of
banking under the laws of the United States, shall be "Fleet National Bank."

SECOND. The main office of the Association shall be in Springfield, Hampden
County Commonwealth of Massachusetts. The general business of the Association
shall be conducted at its main office and its branches.

THIRD. The board of directors of this Association shall consist of not less than
five (5) nor more than twenty-five (25) shareholders, the exact number of
directors within such minimum and maximum limits to be fixed and determined from
time to time by resolution of a majority of the full board of directors or by
resolution of the shareholders at any annual or special meeting thereof. Unless
otherwise provided by the laws of the United States, any vacancy in the board of
directors for any reason, including an increase in the number thereof, may be
filled by action of the board of directors.

FOURTH. The annual meeting of the shareholders for the election of directors and
the transaction of whatever other business may be brought before said meeting
shall be held at the main office or such other place as the board of directors
may designate, on the day of each year specified therefore in the bylaws, but if
no election is held on that day, it may be held on any subsequent day according
to the provisions of law; and all elections shall be held according to such
lawful regulations as may be prescribed by the board of directors.

FIFTH. The authorized amount of capital stock of this Association shall be eight
million five hundred thousand (8,500,000) shares of which three million five
hundred thousand (3,500,000) shares shall be common stock with a par value of
six and 25/100 dollars ($6.25) each, and of which five million (5,000,000)
shares without par value shall be preferred stock. The capital stock may be
increased or decreased from time to time, in accordance with the provisions of
the laws of the United States.

No holder of shares of the capital stock of any class of the Association shall
have any pre-emptive or preferential right of subscription to any shares of any
class of stock of the Association, whether now or hereafter authorized, or to
any obligations convertible into stock of the Association, issued or sold, nor
any right of subscription to any thereof other than such, if any, as the board
of directors, in its discretion, may from time to time determine and at such
price as the board of directors may from time to time fix.

<PAGE> 5

The board of directors of the Association is authorized, subject to limitations
prescribed by law and the provisions of this Article, to provide for the
issuance from time to time in one or more series of any number of the preferred
shares, and to establish the number of shares be included in each series, and to
fix the designation, relative rights, preferences, qualifications and
limitations of the shares of each such series. The authority of the board of
directors with respect to each series shall include, but not be limited to,
determination of the following:

a. The number of shares constituting that series and the distinctive
designation of that series;

b. The dividend rate on the shares of that series, whether dividends shall be
cumulative, and, if so, from which date or dates, and whether they shall be
payable in preference to, or in another relation to, the dividends payable
to any other class or classes or series of stock;

c. Whether that series shall have voting rights, in addition to the voting
rights provided by law, and, if so, the terms of such voting rights;

d. Whether that series shall have conversion or exchange privileges, and, if
so, the terms and conditions of such conversion or exchange, including
provision for the adjustment of the conversion or exchange rate in such
events as the board of directors shall determine;

e. Whether or not the shares of that series shall be redeemable, and, if so,
the terms and conditions of such redemption, including the manner of
selecting shares for redemption if less than all shares are to be redeemed,
the date or dates upon or after which they shall be redeemable, and the
amount per share payable in case of redemption, which amount may vary under
different conditions and at different redemption dates;

f. Whether that series shall be entitled to the benefit of a sinking fund to
be applied to the purchase or redemption of shares of that series, and, if
so, the terms and amounts of such sinking fund;

g. The right of the shares of that series to the benefit of conditions and
restrictions upon the creation of indebtedness of the Association or any
subsidiary, upon the issue of any additional stock (including additional
shares of such series or of any other series) and upon the payment of
dividends or the making of other distributions on, and the purchase,
redemption or other acquisition by the Association or any subsidiary of any
outstanding stock of the Association;

h. The right of the shares of that series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Association and
whether such rights shall be in preference to, or in another relation to,
the comparable rights of any other class or classes or series of stock; and

i. Any other relative, participating, optional or other special rights,
qualifications, limitations or restrictions of that series.

Shares of any series of preferred stock which have been redeemed (whether
through the operation of a sinking fund or otherwise) or which, if convertible
or exchangeable, have been converted into or exchanged for shares of stock of
any other class or classes shall have the status of authorized and unissued
shares of preferred stock of the same series and may be reissued as a part of
the series of which they were originally a part or may be reclassified and
reissued as part of a new series of preferred stock to be created by resolution
or resolutions of the board of directors or as part of any other series or
preferred stock, all subject to the conditions and the restrictions adopted by
the board of directors providing for the issue of any series of preferred stock
and by the provisions of any applicable law.

Subject to the provisions of any applicable law, or except as otherwise provided
by the resolution or resolutions providing for the issue of any series of
preferred stock, the holders of outstanding shares of common stock shall
exclusively possess voting power for the election of directors and for all
purposes, each holder of record of shares of common stock being entitled to one
vote for each share of common stock standing in his name on the books of the
Association.

Except as otherwise provided by the resolution or resolutions providing for the
issue of any series of preferred stock, after payment shall have been made to
the holders of preferred stock of the full amount of dividends to which they
shall be entitled pursuant to the resolution or resolutions providing for the
issue of any other series of preferred stock, the holders of common stock shall
be entitled, to the exclusion of the holders of preferred stock of any and all
series, to receive such dividends as from time to time may be declared by the
board of directors.

Except as otherwise provided by the resolution or resolutions for the issue of
any series of preferred stock, in the event of any liquidation, dissolution or
winding up of the Association, whether voluntary or involuntary, after payment
shall have been made to the holders of preferred stock of the full amount to
which they shall be entitled pursuant to the resolution or resolutions providing
for the issue of any series of preferred stock the holders of common stock shall
be entitled, to the exclusion of the holders of preferred stock of any and all
series, to share, ratable according to the number of shares of common stock held
by them, in all remaining assets of the Association available for distribution
to its shareholders.

The number of authorized shares of any class may be increased or decreased by
the affirmative vote of the holders of a majority of the stock of the
Association entitled to vote.

<PAGE> 6

SIXTH. The board of directors shall appoint one of its members president of this
Association, who shall be chairman of the board, unless the board appoints
another director to be the chairman. The board of directors shall have the power
to appoint one or more vice presidents; and to appoint a secretary and such
other officers and employees as may be required to transact the business of this
Association.

The board of directors shall have the power to define the duties of the officers
and employees of the Association; to fix the salaries to be paid to them; to
dismiss them; to require bonds from them and to fix the penalty thereof; to
regulate the manner in which any increase of the capital of the Association
shall be made; to manage and administer the business and affairs of the
Association; to make all bylaws that it may be lawful for them to make; and
generally to do and perform all acts that it may be legal for a board of
directors to do and perform.

SEVENTH. The board of directors shall have the power to change the location of
the main office to any other place within the limits of the City of Hartford,
Connecticut, without the approval of the shareholders but subject to the
approval of the Comptroller of the Currency; and shall have the power to
establish or change the location of any branch or branches of the Association to
any other location, without the approval of the shareholders but subject to the
approval of the Comptroller of the Currency.

EIGHTH. The corporate existence of this Association shall continue until
terminated in accordance with the laws of the United States.

NINTH. The board of directors of this Association, or any three or more
shareholders owning, in the aggregate, not less than ten percent (10%) of the
stock of this Association, may call a special meeting of shareholders at any
time. Unless otherwise provided by the laws of the United States, a notice of
the time, place and purpose of every annual and special meeting of the
shareholders shall be given by first class mail, postage prepaid, mailed at
least ten (10) days prior to the date of such meeting to each shareholder of
record at his address as shown upon the books of this Association.

TENTH. (a) Right to Indemnification. Each person who was or is made a party or
is threatened to be made a party to any threatened, pending or completed action,
suit, or proceeding, whether civil, criminal, administrative, or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she is or was a
director, officer or employee of the Association or is or was serving at the
request of the Association as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, limited liability company,
trust, or other enterprise, including service with respect to an employee
benefit plan, shall be indemnified and held harmless by the Association to the
fullest extent authorized by the law of the state in which the Association's
ultimate parent company is incorporated, except as provided in subsection (b).
The aforesaid indemnity shall protect the indemnified person against all
expense, liability and loss (including attorney's fees, judgements, fines ERISA
excise taxes or penalties, and amounts paid in settlement) reasonably incurred
by such person in connection with such a proceeding. Such indemnification shall
continue as to a person who has ceased to be a director, officer or employee and
shall inure to the benefit of his or her heirs, executors, and administrators,
but shall only cover such person's period of service with the Association. The
Association may, by action of its Board of Directors, grant rights to
indemnification to agents of the Association and to any director, officer,
employee or agent of any of its subsidiaries with the same scope and effect as
the foregoing indemnification of directors and officers.

(b) Restrictions on Indemnification. Notwithstanding the foregoing, (i) no
person shall be indemnified hereunder by the Association against expenses,
penalties, or other payments incurred in an administrative proceeding or action
instituted by a federal bank regulatory agency which proceeding or action
results in a final order assessing civil money penalties against that person,
requiring affirmative action by that person in the form of payments to the
Association, or removing or prohibiting that person from service with the
Association, and any advancement of expenses to that person in that proceeding
must be repaid; and (ii) no person shall be indemnified hereunder by the
Association and no advancement of expenses shall be made to any person hereunder
to the extent such indemnification or advancement of expenses would violate or
conflict with any applicable federal statute now or hereafter in force or any
applicable final regulation or interpretation now or hereafter adopted by the
Office of the Comptroller of the Currency ("OCC") or the Federal Deposit
Insurance Corporation ("FDIC"). The Association shall comply with any
requirements imposed on it by any such statue or regulation in connection with
any indemnification or advancement of expenses hereunder by the Association.
With respect to proceedings to enforce a claimant's rights to indemnification,
the Association shall indemnify any such claimant in connection with such a
proceeding only as provided in subsection (d) hereof.

(c) Advancement of Expenses. The conditional right to indemnification conferred
in this section shall be a contract right and shall include the right to be paid
by the Association the reasonable expenses (including attorney's fees) incurred
in defending a proceeding in advance of its final disposition (an "advancement
of expenses"); provided, however, that an advancement of expenses shall be made
only upon (i) delivery to the Association of a binding written undertaking by or
on behalf of the person receiving the advancement to repay all amounts so
advanced if it is ultimately determined that such person is not entitled to be
indemnified in such proceeding, including if such proceeding results in a final
order assessing civil money penalties against that person, requiring affirmative
action by that person in the form of payments to the Association, or removing or
prohibiting that person from service with the Association, and (ii) compliance
with any other actions or determinations required by applicable law, regulation
or OCC or FDIC interpretation to be taken or made by the Board of Directors of
the Association or other persons prior to an advancement of expenses. The
Association shall cease advancing expenses at any time its Board of Directors
believes that any of the prerequisites for advancement of expenses are no longer
being met.

(d) Right of Claimant to Bring Suit. If a claim under subsection (a) of the
section is not paid in full by the Association within thirty (30) days after
written claim has been received by the Association, the claimant may at any time
thereafter bring suit against the Association to recover the unpaid amount of
the claim. If successful in whole or in part in any such suit, or in a suit
brought by the Association to recover an advancement of expenses pursuant to the
terms of an undertaking, the claimant shall be entitled to be paid also the
expense of prosecuting or defending such claim. It shall be a defense to any
such action brought by the claimant to enforce a right to indemnification
hereunder (other than an action brought to enforce a claim for an advancement of
expenses where the required undertaking, if any, has been tendered to the
Association) that the claimant has not met any applicable standard for
indemnification under the law of the state in which the Association's ultimate
parent company is incorporated. In any suit brought by the Association to
recover an advancement of expenses pursuant to the terms of an undertaking, the
Association shall be entitled to recover such expenses upon a final adjudication
that the claimant has not met any applicable standard for indemnification
standard for indemnification under the law of the state in which the
Association's ultimate parent company is incorporated.

(e) Non-Exclusivity of Rights. The rights to indemnification and the advancement
of expenses conferred in this section shall not be exclusive of any other right
which any person may have or hereafter acquired under any statute, agreement,
vote of stockholders or disinterested directors or otherwise.

(f) Insurance. The Association may purchase, maintain, and make payment or
reimbursement for reasonable premiums on, insurance to protect itself and any
director, officer, employee or agent of the Association or another corporation,
partnership, joint venture, trust or other enterprise against any expense,
liability or loss, whether or not the Association would have the power to
indemnify such person against such expense, liability or loss under the law of
the state in which the Association's ultimate parent company is incorporated;
provided however, that such insurance shall explicitly exclude insurance
coverage for a final order of a federal bank regulatory agency assessing civil
money penalties against an Association director, officer, employee or agent.

ELEVENTH. These articles of association may be amended at any regular or special
meeting of the shareholders by the affirmative vote of the holders of a majority
of the stock of this Association, unless the vote of the holders of greater
amount of stock is required by law, and in that case by the vote of the holders
of such greater amount. The notice of any shareholders' meeting at which an
amendment to the articles of association of this Association is to be considered
shall be given as hereinabove set forth.

I hereby certify that the articles of association of this Association, in their
entirety, are listed above in items first through eleventh.

Secretary/Assistant Secretary
- --------------------------------------------------

Dated at , as of .
--------------------------------------- --------------------

Revision of February 15, 1996

<PAGE> 7

EXHIBIT 2

[LOGO]

- --------------------------------------------------------------------------------
COMPTROLLER OF THE CURRENCY
ADMINISTRATOR OF NATIONAL BANKS
- --------------------------------------------------------------------------------

Washington, D.C. 20219

CERTIFICATE

I, Eugene A. Ludwig, Comptroller of the Currency, do hereby certify that:

(1) The Comptroller of the Currency, pursuant to Revised Statutes 324, et seq.,
as amended, 12 U.S.C. 1, et seq., as amended, has possession, custody and
control of all records pertaining to the chartering, regulation and supervision
of all National Banking Associations.

(2) "Fleet National Bank of Connecticut", Hartford, Connecticut, (Charter No.
1338), is a National Banking Association formed under the laws of the United
States and is authorized thereunder to transact the business of banking on the
date of this Certificate.

IN TESTIMONY WHEREOF, I have hereunto
subscribed my name and caused my seal of
office to be affixed to these presents at
the Treasury Department, in the City of
Washington and District of Columbia, this
4th day of April, 1996.

/s/ EUGENE A. LUDWIG

----------------------------------
Comptroller of the Currency

<PAGE> 8

EXHIBIT 2

[LOGO]

Washington, D.C. 20219

Certification of Fiduciary Powers

I, Eugene A. Ludwig, Comptroller of the Currency, do hereby certify the records
in this Office evidence "Fleet National Bank of Connecticut", Hartford,
Connecticut, (Charter No. 1338), was granted, under the hand and seal of the
Comptroller, the right to act in all fiduciary capacities authorized under the
provisions of The Act of Congress approved September 28, 1962, 76 Stat. 668, 12
U.S.C. 92a. I further certify the authority so granted remains in full force and
effect.

IN TESTIMONY WHEREOF, I have hereunto
subscribed my name and caused my seal of
Office of the Comptroller of the Currency
to be affixed to these presents at the
Treasury Department, in the City of
Washington and District of Columbia, this
4th day of April, 1996.

/s/ EUGENE A. LUDWIG
----------------------------------
Comptroller of the Currency

<PAGE> 9

EXHIBIT 4

AMENDED AND RESTATED BY-LAWS OF

FLEET NATIONAL BANK

ARTICLE I

MEETINGS OF SHAREHOLDERS

Section 1. Annual Meeting. The regular annual meeting of the shareholders for
the election of Directors and the transaction of any other business that may
properly come before the meeting shall be held at the Main Office of the
Association, or such other place as the Board of Directors may designate, on the
fourth Thursday of April in each year at 1:15 o'clock in the afternoon unless
some other hour of such day is fixed by the Board of Directors.

If, from any cause, an election of Directors is not made on such day, the Board
of Directors shall order the election to be held on some subsequent day, of
which special notice shall be given in accordance with the provisions of law,
and of these bylaws.

Section 2. Special Meetings. Special meetings of the shareholders may be called
at any time by the Board of Directors, the President, or any shareholders owning
not less than twenty-five percent (25%) of the stock of the Association.

Section 3. Notice of Meetings of Shareholders. Except as otherwise provided by
law, notice of the time and place of annual or special meetings of the
shareholders shall be mailed, postage prepaid, at least ten (10) days before the
date of the meeting to each shareholder of record entitled to vote thereat at
his address as shown upon the books of the Association; but any failure to mail
such notice to any shareholder or any irregularity therein, shall not affect the
validity of such meeting or of any of the proceedings thereat. Notice of a
special meeting shall also state the purpose of the meeting.

Section 4. Quorum; Adjourned Meetings. Unless otherwise provided by law, a
quorum for the transaction of business at every meeting of the shareholders
shall consist of not less than two-fifths (2/5) of the outstanding capital stock
represented in person or by proxy; less than such quorum may adjourn the meeting
to a future time. No notice need be given of an adjourned annual or special
meeting of the shareholders if the adjournment be to a definite place and time.

Section 5. Votes and Proxies. At every meeting of the shareholders, each share
of the capital stock shall be entitled to one vote except as otherwise provided
by law. A majority of the votes cast shall decide every question or matter
submitted to the shareholder at any meeting, unless otherwise provided by law or
by the Articles of Association or these By-laws. Shareholders may vote by
proxies duly authorized in writing and filed with the Cashier, but no officer,
clerk, teller or bookeeper of the Association may act as a proxy.

<PAGE> 10

Section 6. Nominations to Board of Directors. At any meeting of shareholders
held for the election of Directors, nominations for election to the Board of
Directors may be made, subject to the provisions of this section, by any
shareholder of record of any outstanding class of stock of the Association
entitled to vote for the election of Directors. No person other than those whose
names are stated as proposed nominees in the proxy statement accompanying the
notice of the meeting may be nominated as such meeting unless a shareholder
shall have given to the President of the Association and to the Comptroller of
the Currency, Washington, DC written notice of intention to nominate such other
person mailed by certified mail or delivered not less than fourteen (14) days
nor more than fifty (50) days prior to the meeting of shareholders at which such
nomination is to be made; provided, however, that if less than twenty-one (21)
days' notice of such meeting is given to shareholders, such notice of intention
to nominate shall be mailed by certified mail or delivered to said President and
said Comptroller on or before the seventh day following the day on which the
notice of such meeting was mailed. Such notice of intention to nominate shall
contain the following information to the extent known to the notifying
shareholder: (a) the name and address of each proposed nominee; (b) the
principal occupation of each proposed nominee; (c) the total number of shares of
capital stock of the Association that will be voted for each proposed nominee;
(d) the name and residence address of the notifying shareholder; and (e) the
number of shares of capital stock of the Association owned by the notifying
shareholder. In the event such notice is given, the proposed nominee may be
nominated either by the shareholder giving such notice or by any other
shareholder present at the meeting at which such nomination is to be made. Such
notice may contain the names of more than one proposed nominee, and if more than
one is named, any one or more of those named may be nominated.

Section 7. Action Taken Without a Shareholder Meeting. Any action requiring
shareholder approval or consent may be taken without a meeting and without
notice of such meeting by written consent of the shareholders.

ARTICLE II

DIRECTORS

Section 1. Number. The Board of Directors shall consist of such number of
shareholders, not less than five (5) nor more than twenty-five (25), as from
time to time shall be determined by a majority of the votes to which all of its
shareholders are at the time entitled, or by the Board of Directors as
hereinafter provided.

Section 2. Mandatory Retirement for Directors. No person shall be elected a
director who has attained the age of 68 and no person shall continue to serve as
a director after the date of the first meeting of the stockholders of the
Association held on or after the date on which such person attains the age of
68; provided, however, that any director serving on the Board as of December 15,
1995 who has attanined the age of 65 on or prior to such date shall be permitted
to continue to serve as a director until the date of the first meeting of the
stockholders of the Association held on or after the date on which such person
attains the age of 70.

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<PAGE> 11

Section 3. General Powers. The Board of Directors shall exercise all the
coporate powers of the Association, except as expressly limited by law, and
shall have the control, management, direction and dispositon of all its property
and affairs.

Section 4. Annual Meeting. Immediately following a meeting of shareholders held
for the election of Directors, the Cashier shall notify the directors-elect who
may be present of their election and they shall then hold a meeting at the Main
Office of the Association, or such other place as the Board of Directors may
designate, for the purpose of taking their oaths, organizing the new Board,
electing officers and transacting any other business that may come before such
meeting.

Section 5. Regular Meeting. Regular meetings of the Board of Directors shall be
held without notice at the Main Office of the Association, or such other place
as the Board of Directors may designate, at such dates and times as the Board
shall determine. If the day designated for a regular meeting falls on a legal
holiday, the meeting shall be held on the next business day.

Section 6. Special Meetings. A special meeting of the Board of Directors may be
called at anytime upon the written request of the Chairman of the Board, the
President, or of two Directors, stating the purpose of the meeting. Notice of
the time and place shall be given not later than the day before the date of the
meeting, by mailing a notice to each Director at his last known address, by
delivering such notice to him personally, or by telephoning.

Section 7. Quorum; Votes. A majority of the Board of Directors at the time
holding office shall constitute a quorum for the transaction of all business,
except when otherwise provided by law, but less than a quorum may adjourn a
meeting from time to time, and the meeting may be held, as adjourned, without
further notice. If a quorum is present when a vote is taken, the affirmative
vote of a majority of Directors present is the act of the Board of Directors.

Section 8. Action by Directors Without a Meeting. Any action requiring Director
approval or consent may be taken without a meeting and without notice of such
meeting by written consent of all the Directors.

Section 9. Telephonic Participation in Directors' Meetings. A Director or member
of a Committee of the Board of Directors may participate in a meeting of the
Board or of such Committee may participate in a meeting of the Board or of such
Committee by means of a conference telephone or similar communications equipment
enabling all Directors participating in the meeting to hear one another, and
participation in such a meeting shall constitute presence in person at such a
meeting.

Section 10. Vacancies. Vacancies in the Board of Directors may be filled by the
remaining members of the Board at any regular or special meeting of the Board.

Section 11. Interim Appointments. The Board of Directors shall, if the
shareholders at any meeting for the election of Directors have determined a
number of Directors less than twenty-five (25), have the power, by affirmative
vote of the majority of all the Directors, to increase such number of Directors
to not more than twenty-five (25) and to elect Directors to fill the resulting
vacancies and to serve until the next annual meeting of shareholders or the next
election of Directors; provided, however, that the number of Directors shall not
be so increased by more than two (2) if the number last determined by
shareholders was fifteen (15) or less, or increased by more than four (4) if the
number last determined by shareholders was sixteen (16) or more.

Section 12. Fees. The Board of Directors shall fix the amount and direct the
payment of fees which shall be paid to each Director for attendance at any
meeting of the Board of Directors or of any Committees of the Board.

ARTICLE III

COMMITTEES OF THE BOARD

Section 1. Executive Committee. The Board of Directors shall appoint from its
members an Executive Committee which shall consist of such number of persons as
the Board of Directors shall determine; the Chairman of the Board and the
President shall be members ex-officio of the Executive Committee with full
voting power. The Chairman of the Board or the President may from time to time
appoint from the Board of Directors as temporary additional members of the
Executive Committee, with full voting powers, not more than two members to serve
for such periods as the Chairman of the Board or the President may determine.
The Board of Directors shall designate a member of the Executive Committee to
serve as Chairman thereof. A meeting of the Executive Committee may be called at
any time upon the written request of the Chairman of the Board, the President or
the Chairman of the Executive Committee, stating the purpose of the meeting. Not
less than twenty four hours' notice of said meeting shall be given to each
member of the Committee personally, by telephoning, or by mail. The Chairman of
the Executive Committee or, in his absence, a member of the Committee chosen by
a majority of the members present shall preside at meetings of the Executive
Committee.

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<PAGE> 12

The Executive Committee shall possess and may exercise all the powers of the
Board when the Board is not in session except such as the Board, only, by law,
is authorized to exercise; it shall keep minutes of its acts and proceedings and
cause same to be presented and reported at every regular meeting and at any
special meeting of the Board including specifically, all its actions relating to
loans and discounts.

All acts done and powers and authority conferred by the Executive Committee,
from time to time, within the scope of its authority, shall be deemed to be, and
may be certified as being, the acts of and under the authority of the Board.

Section 2. Risk Management Committee. The Board shall appoint from its members a
Risk Management Committee which shall consist of such number as the Board shall
determine. The Board shall designate a member of the Risk Management Committee
to serve as Chairman thereof. It shall be the duty of the Risk Management
Committee to (a) serve as the channel of communication with management and the
Board of Directors of Fleet Financial Group, Inc. to assure that formal
processes supported by management information systems are in place for the
identification, evaluation and management of significant risks inherent in or
associated with lending activities, the loan portfolio, asset-liablity
management, the investment portfolio, trust and investment advisory activities,
the sale of nondeposit investment products and new products and services and
such additional activities or functions as the Board may determine from time to
time; (b) assure the formulation and adoption of policies approved by the Risk
Management Committee or Board governing lending activities, management of the
loan portfolio, the maintenance of an adequate allowance for loan and lease
losses, asset-liability management, the investment portfolio, the retail sale of
non-deposit investment products, new products and services and such additional
activities or functions as the Board may determine from time to time (c) assure
that a comprehensive independent loan review program is in place for the early
detection of problem loans and review significant reports of the loan review
department, management's responses to those reports and the risk attributed to
unresolved issues; (d) subject to control of the Board, exercise general
supervision over trust activities, the investment of trust funds, the
disposition of trust investments and the acceptance of new trusts and the terms
of such acceptance, and (e) perform such additional duties and exercise such
additional powers of the Board as the Board may determine from time to time.

Section 3. Audit Committee. The Board shall appoint from its members and Audit
Committee which shall consist of such number as the Board shall determine no one
of whom shall be an active officer or employee of the Association or Fleet
Financial Group, Inc. or any of its affiliates. In addition, members of the
Audit Committee must not (i) have served as an officer or employee of the
Association or any of its affiliates at any time during the year prior to their
appointment; or (ii) own, control, or have owned or controlled at any time
during the year prior to appointment, ten percent (10%) or more of any
outstanding class of voting securities of the Association. At least two (2)
members of the Audit Committee must have significant executive, professional,
educational or regulatory experience in financial, auditing, accounting, or
banking matters. No member of the Audit Commitee may have significant direct or
indirect credit or other relationships with the Association, the termination of
which would materially adversely affect the Association's financial condition or
results of operations.

The Board shall designate a member of the Audit Committee to serve as Chairman
thereof. It shall be the duty of the Audit Committee to (a) cause a continuous
audit and examination to be made on its behalf into the affairs of the
Association and to review the results of such examination; (b) review
significant reports of the internal auditing department, management's responses
to those reports and the risk attributed to unresolved issues; (c) review the
basis for the reports issued under Section 112 of The Federal Deposit Insurance
Corporation Improvement Act of 1991; (d) consider, in consultation with the
independent auditor and an internal auditing executive, the adequacy of the
Association's internal controls, including the resolution of identified material
weakness and reportable conditions; (e) review regulatory communications
received from any federal or state agency with supervisory jurisdiction or other
examining authority and monitor any needed corrective action by management; (f)
ensure that a formal system of internal controls is in place for maintaining
compliance with laws and regulations; (g) cause an audit of the Trust Department
at least once during each calendar year and within 15 months of the last such
audit or, in lieu thereof, adopt a continuous audit system and report to the
Board each calendar year and within 15 months of the previous report on the
performance of such audit function; and (h) perform such additional duties and
exercise such additional powers of the Board as the Board may determine from
time to time.

The Audit Committee may consult with internal counsel and retain its own outside
counsel without approval (prior or otherwise) from the Board or management and
obligate the Association to pay the fees of such counsel.

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<PAGE> 13

Section 4. Community Affairs Committee. The Board shall appoint from its members
a Community Affairs Committee which shall consist of such number as the Board
shall determine. The Board shall designate a member of the Community Affairs
Committee to serve as Chairman thereof. It shall be the duty of the Commmunity
Affairs Committee to (a) oversee compliance by the Association with the
Community Reinvestment Act of 1977, as amended, and the regulations promulgated
thereunder; and (b) perform such additional duties and exercise such additional
powers of the Board as the Board may determine from time to time.

Section 5. Regular Meetings. Except for the Executive Committee which shall meet
on an ad hoc basis as set forth in Section 1 of this Article, regular meetings
of the Committees of the Board of Directors shall be held, without notice, at
such time and place as the Committee or the Board of Directors may appoint and
as often as the business of the Association may require.

Section 6. Special Meetings. A Special Meeting of any of the Committees of the
Board of Directors may be called upon the written request of the Chairman of the
Board or the President, or of any two members of the respective Committee,
stating the purpose of the meeting. Not less than twenty-four hours' notice of
such special meeting shall be given to each member of the Committee personally,
by telephoning, or by mail.

Section 7. Emergency Meetings. An Emergency Meeting of any of the Committees of
the Board of Directors may be called at the request of the Chairman of the Board
or the President, who shall state that an emergency exists, upon not less than
one hour's notice to each member of the Committee personally or by telephoning.

Section 8. Action Taken Without a Committee Meeting. Any Committee of the Board
of Directors may take action without a meeting and without notice of such
meeting by resolution assented to in writing by all members of such Committee.

Section 9. Quorum. A majority of a Committee of the Board of Directors shall
constitute a quorum for the transaction of any business at any meeting of such
Committee. If a quorum is not available, the Chairman of the Board or the
President shall have power to make temporary appointments to a Committee
of-members of the Board of Directors, to act in the place and stead of members
who temporarily cannot attend any such meeting; provided, however, that any
temporary appointment to the Audit Committee must meet the requirements for
members of that Committee set forth in Section 3 of this Article.

Section 10. Record. The committees of the Board of Directors shall keep a record
of their respective meetings and proceedings which shall be presented at the
regular meeting of the Board of Directors held in the calendar month next
following the meetings of the Committees. If there is no regular Board of
Directors meeting held in the calendar month next following the meeting of a
Committee, then such Committee's records shall be presented at the next regular
Board of Directors meeting held in a month subsequent to such Committee meeting.

Section 11. Changes and Vacancies. The Board of Directors shall have power to
change the members of any Committee at any time and to fill vacancies on any
Committee; provided, however, that any newly appointed member of the Audit
Committee must meet the requirements for members of that Committee set forth in
Section 3 of this Article.

Section 12. Other Committees. The Board of Directors may appoint, from time to
time, other committees of one or more persons, for such purposes and with such
powers as the Board may determine.

ARTICLE IV

WAIVER OF NOTICE OF MEETINGS

Section 1. Waiver. Whenever notice is required to be given to any shareholder,
Director, or member of a Committee of the Board of Directors, such notice may be
waived in writing either before or after such meeting by any shareholder,
Director or Committee member respectively, as the case may be, who may be
entitled to such notice; and such notice will be deemed to be waived by
attendance at any such meeting.

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<PAGE> 14

ARTICLE V

OFFICERS AND AGENTS

Section 1. Officers. The Board shall appoint a Chairman of the Board and a
President, and shall have the power to appoint one or more Executive Vice
Presidents, one or more Senior Vice Presidents, one or more Vice Presidents, a
Cashier, a Secretary, an Auditor, a Controller, one or more Trust Officers
and-such other officers as are deemed necessary or desirable for the proper
transaction of business of the Association. The Chairman of the Board and the
President shall be appointed from members of the Board of Directors. Any two or
more offices, except those of President and Cashier, or Secretary, may be held
by the same person. The Board may, from time to time, by resolution passed by a
majority of the entire Board, designate one or more officers of the Association
or of an affiliate or of Fleet Financial Group, Inc. with power to appoint one
or more Vice Presidents and such other officers of the Association below the
level of Vice President as the officer or officers designated in such resolution
deem necessary or desirable for the proper transaction of the business of the
Association.

Section 2. Chairman of the Board. The chairman of the Board shall preside at all
meetings of the Board of Directors. Subject to definition by the Board of
Directors, he shall have general executive powers and such specific powers and
duties as from time to time may be conferred upon or assigned to him by the
Board of Directors.

Section 3. President. The President shall preside at all meetings of the Board
of Directors if there be no Chairman or if the Chairman be absent. Subject to
definition by the Board of Directors, he shall have general executive powers and
such specific powers and duties as from time to time may be conferred upon or
assigned to him by the Board of Directors.

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<PAGE> 15

Section 4. Cashier and Secretary. The Cashier shall be the Secretary of the
Board and of the Executive Committee, and shall keep accurate minutes of their
meetings and of all meetings of the shareholders. He shall attend to the giving
of all notices required by these By-laws. He shall be custodian of the corporate
seal, records, documents and papers of the Association. He shall have such
powers and perform such duties as pertain by law or regulation to the office of
Cashier, or as are imposed by these By-laws, or as may be delegated to him from
time to time by the Board of Directors, the Chairman of the Board or the
President.

Section 5. Auditor. The Auditor shall be the chief auditing officer of the
Association. He shall continuously examine the affairs of the Association and
from time to time shall report to the Board of Directors. He shall have such
powers and perform such duties as are conferred upon, or assigned to him by
these By-laws, or as may be delegated to him from time to time by the Board of
Directors.

Section 6. Officers Seriatim. The Board of Directors shall designate from time
to time not less than two officers who shall in the absence or disability of the
Chairman or President or both, succeed seriatim to the duties and
responsibilities of the Chairman and President respectively.

Section 7. Clerks and Agents. The Board of Directors may appoint, from time to
time, such clerks, agents and employees as it may deem advisable for the prompt
and orderly transaction of the business of the Association, define their duties,
fix the salaries to be paid them and dismiss them. Subject to the authority of
the Board of Directors, the Chairman of the Board or the President, or any other
officer of the Association authorized by either of them may appoint and dismiss
all or any clerks, agents and employees and prescribe their duties and the
conditions of their employment, and from time to time fix their compensation.

Section 8. Tenure. The Chairman of the Board of Directors and the President
shall, except in the case of death, resignation, retirement or disqualification
under these By-laws, or unless removed by the affirmative vote of at least
two-thirds of all of the members of the Board of Directors, hold office for the
term of one year or until their respective successors are appointed. Either of
such officers appointed to fill a vacancy occurring in an unexpired term shall
serve for such unexpired term of such vacancy. All other officers, clerks,
agents, attorneys-in-fact and employees of the Association shall hold office
during the pleasure of the Board of Directors or of the officer or committee
appointing them respectively.

ARTICLE VI

TRUST DEPARTMENT

Section 1. General Powers and Duties. All fiduciary powers of the Association
shall be exercised through the Trust Department, subject to such regulations as
the Comptroller of the Currency shall from time to time establish. The Trust
Department shall be to placed under the management and immediate supervision of
an officer or officers appointed by the Board of Directors. The duties of all
officers of the Trust Department shall be to cause the policies and instructions
of the Board and the Risk Management Committee with respect to the trusts under
their supervision to be carried out, and to supervise the due performance of the
trusts and agencies entrusted to the Association and under their supervision, in
accordance with law and in accordance with the terms of such trusts and
agencies.

-7-

<PAGE> 16

ARTICLE VII

BRANCH OFFICES

Section 1. Establishment. The Board of Directors shall have full power to
establish, to discontinue, or, from time to time, to change the location of any
branch office, subject to such limitations as may be provided by law.

Section 2. Supervision and Control. Subject to the general supervision and
control of the Board of Directors, the affairs of branch offices shall be under
the immediate supervision and control of the President or of such other officer
or officers, employee or employees, or other individuals as the Board of
Directors may from time to time determine, with such powers and duties as the
Board of Directors may confer upon or assign to him or them.

ARTICLE VIII

SIGNATURE POWERS

Section 1. Authorization. The power of officers, employees, agents and attorneys
to sign on behalf of and to affix the seal of the Association shall be
prescribed by the Board of Directors or by the Executive Committee or by both;
provided that the President is authorized to restrict such power of any officer,
employee, agent or attorney to the business of a specific department or
departments, or to a specific branch office or branch offices. Facsimile
signatures may be authorized.

-8-

<PAGE> 17

ARTICLE IX

STOCK CERTIFICATES AND TRANSFERS

Section 1. Stock Records. The Trust Department shall have custody of the stock
certificate books and stock ledgers of the Association, and shall make all
transfers of stock, issue certificates thereof and disburse dividends declared
thereon.

Section 2. Form of Certificate. Every shareholder shall be entitled to a
certificate conforming to the requirements of law and otherwise in such form as
the Board of Directors may approve. The certificates shall state on the face
thereof that the stock is transferable only on the books of the Association and
shall be signed by such officers as may be prescribed from time to time by the
Board of Directors or Executive Committee. Facsimile signatures may be
authorized.

Section 3. Transfers of Stock. Transfers of stock shall be made only on the
books of the Association by the holder in person, or by attorney duly authorized
in writing, upon surrender of the certificate therefor properly endorsed, or
upon the surrender of such certificate accompanied by a properly executed
written assignment of the same, or a written power of attorney to sell, assign
or transfer the same or the shares represented thereby.

Section 4. Lost Certificate. The Board of Directors or Executive Committee may
order a new certificate to be issued in place of a certificate lost or
destroyed, upon proof of such loss or destruction and upon tender to the
Association by the shareholder, of a bond in such amount and with or without
surety, as may be ordered, indemnifying the Association against all liability,
loss, cost and damage by reason of such loss or destruction and the issuance of
a new certificate.

Section 5. Closing Transfer Books. The Board of Directors may close the transfer
books for a period not exceeding thirty days preceding any regular or special
meeting of the shareholders, or the day designated for the payment of a dividend
or the allotment of rights. In lieu of closing the transfer books the Board of
Directors may fix a day and hour not more than thirty days prior to the day of
holding any meeting of the shareholders, or the day designated for the payment
of a dividend, or the day designated for the allotment of rights, or the day
when any change of conversion or exchange of capital stock is to go into effect,
as the day as of which shareholders entitled to notice of and to vote at such
meetings or entitled to such dividend or to such allotment of rights or to
exercise the rights in respect of any such change, conversion or exchange of
capital stock, shall be determined, and only such shareholders as shall be
shareholders of record on the day and hour so fixed shall be entitled to notice
of and to vote at such meeting or to receive payment of such dividend or to
receive such allotment of rights or to exercise such rights, as the case may be.

ARTICLE X

THE CORPORATE SEAL

Section 1. Seal. The following is an impression of the seal of the Association
adopted by the Board of Directors.

ARTICLE XI

BUSINESS HOURS

Section 1. Business Hours. The main office of this Association and each branch
office thereof shall be open for business on such days, and for such hours as
the Chairman, or the President, or any Executive Vice President, or such other
officer as the Board of Directors shall from time to time designate, may
determine as to each office to conform to local custom and convenience, provided
that any one or more of the main and branch offices or certain departments
thereof may be open for such hours as the President, or such other officer as
the Board of Directors shall from time to time designate, may determine as to
each office or department on any legal holiday on which work is not prohibited
by law, and provided further that any one or more of the main and branch offices
or certain departments thereof may be ordered closed or open on any day for such
hours as to each office or department as the President, or such other officer as
the Board of Directors shall from time to time designate, subject to applicable
laws regulations, may determine when such action may be required by reason of
disaster or other emergency condition.

ARTICLE IX

CHANGES IN BY-LAWS

Section 1. Amendments. These By-laws may be amended upon vote of a majority of
the entire Board of Directors at any meeting of the Board, provided ten (10)
day's notice of the proposed amendment has been given to each member of the
Board of Directors. No amendment may be made unless the By-law, as amended, is
consistent with the requirements of law and of the Articles of Association.
These By-laws may also be amended by the Association's shareholders.

A true copy

Attest:

Secretary/Assistant Secretary
- ---------------------------------------

Dated at , as of .
--------------------------------------- ----------------------

Revision of January 11, 1993

-9-

<PAGE> 18

EXHIBIT 5

CONSENT OF THE TRUSTEE
REQUIRED BY SECTION 321(b)
OF THE TRUST INDENTURE ACT OF 1939

The undersigned, as Trustee under the Indenture to be entered into between
Calpine Corporation and Fleet National Bank, as Trustee, does hereby consent
that, pursuant to Section 321(b) of the Trust Indenture Act of 1939, reports of
examinations with respect to the undersigned by Federal, State, Territorial or
District authorities may be furnished by such authorities to the Securities and
Exchange Commission upon request therefor.

FLEET NATIONAL BANK,
AS TRUSTEE

By /s/
-------------------------------
Michael M. Hopkins
Its: Vice President

Dated:

<PAGE> 19

EXHIBIT 6

<TABLE>

<S> <C>

Board of Governors of the Federal Reserve System
OMB Number: 7100-0036

Federal Deposit Insurance Corporation
OMB Number: 3064-0052

Office of the Comptroller of the Currency
OMB Number: 1557-0081

FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCIL Expires March 31, 1999
- -----------------------------------------------------------------------------------------------------------------------------

Please refer to page i, / 1 /
[LOGO] Table of Contents, for
the required disclosure
of estimated burden.

- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE> 20

CONSOLIDATED REPORTS OF CONDITION AND INCOME FOR
A BANK WITH DOMESTIC AND FOREIGN OFFICES--FFIEC 031

(960331)
REPORT AT THE CLOSE OF BUSINESS March 31, 1996 -----------
(RCRI 9999)

This report is required by law: 12 U.S.C. Section 324 (State member banks);
12 U.S.C. Section 1817 (State nonmember banks); and 12 U.S.C. Section 161
(National banks).

This report form is to be filed by banks with branches and consolidation
subsidiaries in U.S. territories and possessions, Edge or Agreement
subsidiaries, foreign branches, consolidated foreign subsidiaries, or
International Banking Facilities.

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

NOTE: The Reports of Condition and Income must be signed by an authorized
officer and the Report of Condition must be attested to by not less than two
directors (trustees) for State nonmember banks and three directors for State
member and National banks.

I, Giro S. DeRosa, Vice President and Controller
-----------------------------------------------------------------------------
Name and Title of Officer Authorized to Sign Report

of the named bank do hereby declare that these Reports of Condition and Income
(including the supporting schedules) have been prepared in conformance with the
instructions issued by the appropriate Federal regulatory authority and are true
to the best of my knowledge and belief.

/s/ GIRO DEROSA
- --------------------------------------------------------------------------------
Signature of Officer Authorized to Sign Report

April 25, 1996
- --------------------------------------------------------------------------------
Date of Signature

The Reports of Condition and Income are to be prepared in accordance with
Federal regulatory authority instructions. NOTE: These instructions may in some
cases differ from generally accepted accounting principles.

We, the undersigned directors (trustees), attest to the correctness of this
Report of Condition (including the supporting schedules) and declare that it has
been examined by us and to the best of our knowledge and belief has been
prepared in conformance with the instructions issued by the appropriate Federal
regulatory authority and is true and correct.

/s/
- --------------------------------------------------------------------------------
Director (Trustee)

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

<PAGE> 21

FOR BANKS SUBMITTING HARD COPY REPORT FORMS:

STATE MEMBER BANKS: Return the original and one copy to the appropriate Federal
Reserve District Bank.

STATE NONMEMBER BANKS: Return the original only in the special return address
envelope provided. If express mail is used in lieu of the special return address
envelope, return the original only to the FDIC, c/o Quality Data Systems, 2127
Espey Court, Suite 204, Crofton, MD 21114.

NATIONAL BANKS: Return the original only in the special return address envelope
provided. If express mail is used in lieu of the special return address
envelope, return the original only to the FDIC, c/o Quality Data Systems, 2127
Espey Court, Suite 204, Crofton, MD 21114.

---
FDIC Certificate Number | 1 | 0 | 5 | 8 | 2 | |
______________________ CALL NO. 190 31 03-31-96
(RCRI 9050)

CERT: 02499 10582 STBK 09-0590

FLEET NATIONAL BANK OF CONNECTICUT
777 MAIN STREET
HARTFORD, CT 06115

| |
--- ---

<FN>
Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency
</FN>
</TABLE>

<PAGE> 22

FFIEC 031
Page i
/2/

Consolidated Reports of Condition and Income for
A Bank With Domestic and Foreign Offices
- --------------------------------------------------------------------------------

TABLE OF CONTENTS

SIGNATURE PAGE Cover

REPORT OF INCOME

Schedule RI--Income Statement...........................................RI-1,2,3
Schedule RI-A--Changes in Equity Capital....................................RI-3
Schedule RI-B--Charge-offs and Recoveries and
Changes in Allowance for Loan and Lease
Losses..................................................................RI-4,5
Schedule RI-C--Applicable Income Taxes by
Taxing Authority..........................................................RI-5
Schedule RI-D--Income from
International Operations..................................................RI-6
Schedule RI-E--Explanations...............................................RI-7,8

REPORT OF CONDITION

Schedule RC--Balance Sheet................................................RC-1,2
Schedule RC-A--Cash and Balances Due
From Depository Institutions..............................................RC-3
Schedule RC-B--Securities...............................................RC-3,4,5
Schedule RC-C--Loans and Lease Fianancing
Receivables:
Part I. Loans and Leases..............................................RC-6,7
Part II. Loans to Small Businesses and
Small Farms (included in the forms for
June 30 only).....................................................RC-7a,7b
Schedule RC-D--Trading Assets and Liabilities
(to be completed only by selected banks)..................................RC-8
Schedule RC-E--Deposit Liabilities....................................RC-9,10,11
Schedule RC-F--Only Assets.................................................RC-11
Schedule RC-G--Other Liabilities...........................................RC-11
Schedule RC-H--Selected Balance Sheet Items for
Domestic Offices.........................................................RC-12
Schedule RC-I--Selected Assets and Liabilities
of IBF's.................................................................RC-13
Schedule RC-K--Quarterly Averages..........................................RC-13
Schedule RC-L--Off-Balance Sheet Items...............................RC-14,15,16
Schedule RC-M--Memoranda................................................RC-17,18
Schedule RC-N--Past Due and Nonaccrual Loans,
Leases, and Other Assets..............................................RC-19,20
Schedule RC-O--Other Data for Deposit
Insurance Assessments.................................................RC-21,22
Schedule RC-R--Risk-Based Captial.......................................RC-23,24
Optional Narrative Statement Concerning the
Amounts Reported in the Reports of
Conditions and Income....................................................RC-25
Special Report (TO BE COMPLETED BY ALL BANKS)
Schedule RC-J--Repricing Opportunities (sent only to
and to be completed only by savings banks)

<PAGE> 23

DISCLOSURE OF ESTIMATED BURDEN

The estimated average burden associated with this information collection is 32.2
hours per respondent and is estimated to vary from 15 to 230 hours per response,
depending on individual circumstances. Burden estimates include the time for
reviewing instructions, gathering and maintaining data in the required form, and
completing the information collection, but exclude the time for compiling and
maintaining business records in the normal course of a respondent's activities.
Comments concerning the accuracy of this burden estimate and suggestions for
reducing this burden should be directed to the Office of Information and
Regulatory Affairs. Office of Management and Budget, Washington, D.C. 20503, and
to one of the following:

Secretary
Board of Governors of the Federal Reserve System
Washington, D.C. 20551

Legislative and Regulatory Analysis Division
Office of the Comptroller of the Currency
Washington, D.C. 20219

Assistant Executive Secretary
Federal Deposit Insurance Corporation
Washington, D.C. 20429

For information or assistance, national and state nonmember banks should contact
the FDIC's Call Reports Analysis Unit, 550 17th Street, NW, Washington, D.C.
20429, toll free on (800)688-FDIC (3342), Monday through Friday between 8:00
a.m. and 5:00 p.m., Eastern time. State member banks should contact their
Federal Reserve District Bank.

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

<PAGE> 24

Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RI-1
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
</TABLE>

Consolidated Report of Income
for the period January 1, 1996 - March 31, 1996

All Report of Income schedules are to be reported on a calendar year-to-date
basis in thousands of dollars.

file

<TABLE>
<CAPTION>
Schedule RI--Income Statement ________
| I480 |

Dollar Amounts in Thousands RIAD Bil Mil Thou__|
- ----------------------------------------------------------------------------------------------- -----------|--------|
<S> <C> <C> <C>
1. Interest income: | ////////////////// |
a. Interest and fee income on loans: | ////////////////// |
(1) In domestic offices: | ////////////////// |
(a) Loans secured by real estate ................................................... | 4011 68,007 | 1.a.(1)(a)
(b) Loans to depository institutions ............................................... | 4019 0 | 1.a.(1)(b)
(c) Loans to finance agricultural production and other loans to farmers ............ | 4024 42 | 1.a.(1)(c)
(d) Commercial and industrial loans ................................................ | 4012 119,467 | 1.a.(1)(d)
(e) Acceptances of other banks ..................................................... | 4026 22 | 1.a.(1)(e)
(f) Loans to individuals for household, family, and other personal expenditures: | ////////////////// |
(1) Credit cards and related plans ............................................. | 4054 1,870 | 1.a.(1)(f)(1)
(2) Other ...................................................................... | 4055 11,553 | 1.a.(1)(f)(2)
(g) Loans to foreign governments and official institutions ......................... | 4056 0 | 1.a.(1)(g)
(h) Obligations (other than securities and leases) of states and political | ////////////////// |
subdivisions in the U.S.: | ////////////////// |
(1) Taxable obligations ........................................................ | 4503 0 | 1.a.(1)(h)(1)
(2) Tax-exempt obligations ..................................................... | 4504 469 | 1.a.(1)(h)(2)
(i) All other loans in domestic offices ............................................ | 4058 14,004 | 1.a.(1)(i)
(2) In foreign offices, Edge and Agreement subsidiaries, and IBFs ...................... | 4059 0 | 1.a.(2)
b. Income from lease financing receivables: | ////////////////// |
(1) Taxable leases ..................................................................... | 4505 192 | 1.b.(1)
(2) Tax-exempt leases .................................................................. | 4307 0 | 1.b.(2)
c. Interest income on balances due from depository institutions:(1) | ////////////////// |
(1) In domestic offices ................................................................ | 4105 0 | 1.c.(1)
(2) In foreign offices, Edge and Agreement subsidiaries, and IBFs ...................... | 4106 26 | 1.c.(2)
d. Interest and dividend income on securities: | ////////////////// |
(1) U.S. Treasury securities and U.S. Government agency and corporation obligations .... | 4027 33,725 | 1.d.(1)
(2) Securities issued by states and political subdivisions in the U.S.: | ////////////////// |
(a) Taxable securities ............................................................. | 4506 0 | 1.d.(2)(a)
(b) Tax-exempt securities .......................................................... | 4507 1 | 1.d.(2)(b)
(3) Other domestic debt securities ..................................................... | 3657 7,306 | 1.d.(3)
(4) Foreign debt securities ............................................................ | 3658 49 | 1.d.(4)
(5) Equity securities (including investments in mutual funds) .......................... | 3659 1,888 | 1.d.(5)
e. Interest income from trading assets..................................................... | 4069 0 | 1.e.
----------------------
<FN>
- ------------
(1) Includes interest income on time certificates of deposit not held for trading.
</FN>
</TABLE>

<PAGE> 25

<TABLE>

<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RI-2

City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|

-----------
</TABLE>

Schedule RI--Continued

--------------
Dollar Amounts in Thousands | Year-to-date |
- ----------------------------------------------------------------------------------- --------------
<S> <C> <C> <C>
1. Interest income (continued) | RIAD Bil Mil Thou |
f. Interest income on federal funds sold and securities purchased | ////////////////// |
under agreements to resell in domestic offices of the bank and of | ////////////////// |
its Edge and Agreement subsidiaries, and in IBFs .................... | 4020 292 | 1.f.
g. Total interest income (sum of items 1.a through 1.f) ................ | 4107 258,913 | 1.g.
2. Interest expense: | ////////////////// |
a. Interest on deposits: | ////////////////// |
(1) Interest on deposits in domestic offices: | ////////////////// |
(a) Transaction accounts (NOW accounts, ATS accounts, and | ////////////////// |
telephone and preauthorized transfer accounts) .............. | 4508 519 | 2.a.(1)(a)
(b) Nontransaction accounts: | ////////////////// |
(1) Money market deposit accounts (MMDAs) ................... | 4509 6,345 | 2.a.(1)(b)(1)
(2) Other savings deposits .................................. | 4511 11,368 | 2.a.(1)(b)(2)
(3) Time certificates of deposit of $100,000 or more ........ | 4174 21,500 | 2.a.(1)(b)(3)
(4) All other time deposits ................................. | 4512 31,522 | 2.a.(1)(b)(4)
(2) Interest on deposits in foreign offices, Edge and Agreement | ////////////////// |
subsidiaries, and IBFs .......................................... | 4172 4,742 | 2.a.(2)
b. Expense of federal funds purchased and securities sold under | ////////////////// |
agreements to repurchase in domestic offices of the bank and of | ////////////////// |
its Edge and Agreement subsidiaries, and in IBFs .................... | 4180 35,405 | 2.b.
c. Interest on demand notes issued to the U.S. Treasury, trading | ////////////////// |
liabilities, and other money borrowed ............................... | 4185 29,123 | 2.c.
d. Interest on mortgage indebtedness and obligations under | ////////////////// |
capitalized leases .................................................. | 4072 106 | 2.d.
e. Interest on subordinated notes and debentures ....................... | 4200 2,993 | 2.e.
f. Total interest expense (sum of items 2.a through 2.e) ............... | 4073 143,623 | 2.f.
---------------------------
3. Net interest income (item 1.g minus 2.f) ............................... | ////////////////// | RIAD 4074 | 115,290 | 3.
---------------------------
4. Provisions: | ////////////////// |
---------------------------
a. Provision for loan and lease losses ................................. | ////////////////// | RIAD 4230 | 1,911 | 4.a.
b. Provision for allocated transfer risk ............................... | ////////////////// | RIAD 4243 | 0 | 4.b.
---------------------------
5. Noninterest income: | ////////////////// |
a. Income from fiduciary activities .................................... | 4070 21,652 | 5.a.
b. Service charges on deposit accounts in domestic offices ............. | 4080 15,687 | 5.b.
c. Trading revenue (must equal Schedule RI, sum of Memorandum | ////////////////// |
items 8.a through 8.d)............................................... A220 78 5.c.
d. Other foreign transaction gains (losses) ............................ | 4076 6 | 5.d.
e. Not applicable....................................................... | ////////////////// |
f. Other noninterest income: | ////////////////// |
(1) Other fee income ................................................ | 5407 13,425 | 5.f.(1)
(2) All other noninterest income* ................................... | 5408 43,419 | 5.f.(2)
---------------------------
g. Total noninterest income (sum of items 5.a through 5.f) ............. | ////////////////// | RIAD 4079 | 94,267 | 5.g.
6. a. Realized gains (losses) on held-to-maturity securities .............. | ////////////////// | RIAD 3521 | 1 | 6.a.
b. Realized gains (losses) on available-for-sale securities ............ | ////////////////// | RIAD 3196 | 11,352 | 6.b.
| ////////////////// |---------------------------
7. Noninterest expense: | ////////////////// |
a. Salaries and employee benefits ...................................... | 4135 36,676 | 7.a.
b. Expenses of premises and fixed assets (net of rental income) | ////////////////// |
(excluding salaries and employee benefits and mortgage interest) .... | 4217 14,846 | 7.b.
c. Other noninterest expense* .......................................... | 4092 57,219 | 7.c.
---------------------------
d. Total noninterest expense (sum of items 7.a through 7.c) ............ | ////////////////// | RIAD 4093 | 108,741 | 7.d.
---------------------------
8. Income (loss) before income taxes and extraordinary items and other | ////////////////// |
---------------------------
adjustments (item 3 plus or minus items 4.a, 4.b, 5.g, 6.a, 6.b, and 7.d)| ////////////////// | RIAD 4301 | 110,258 | 8.
9. Applicable income taxes (on item 8) .................................... | ////////////////// | RIAD 4302 | 51,617 | 9.
---------------------------
10. Income (loss) before extraordinary items and other adjustments | ////////////////// |
---------------------------
(item 8 minus 9) ....................................................... | ////////////////// | RIAD 4300 | 58,641 | 10.
-------------------------------------------------
<FN>

- ------------
*Describe on Schedule RI-E--Explanations.
</FN>
</TABLE>

<PAGE> 26

<TABLE>

<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RI-3
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|

-----------
</TABLE>

<TABLE>
<CAPTION>
Schedule RI--Continued

--------------
| Year-to-date |
------ --------------
Dollar Amounts in Thousands | RIAD Bil Mil Thou |
- ----------------------------------------------------------------------------------- --------------
<S> <C> <C> <C>
11. Extraordinary items and other adjustments: | ////////////////// |

a. Extraordinary items and other adjustments, gross of income taxes* . | 4310 0 | 11.a.
b. Applicable income taxes (on item 11.a)* ........................... | 4315 0 | 11.b.
c. Extraordinary items and other adjustments, net of income taxes | ////////////////// |
---------------------------
(item 11.a minus 11.b) ............................................ | ////////////////// | RIAD 4320 | 0 | 11.c.
12. Net income (loss) (sum of items 10 and 11.c) ......................... | ////////////////// | RIAD 4340 | 58,641 | 12.
-------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
----------
______|__I481__|
Memoranda | Year-to-date |
------ --------------
Dollar Amounts in Thousands | RIAD Bil Mil Thou |
- ------------------------------------------------------------------------------------------------------ --------------------
<S> <C> <C>
1. Interest expense incurred to carry tax-exempt securities, loans, and leases acquired after | ////////////////// |
August 7, 1986, that is not deductible for federal income tax purposes .......................... | 4513 0 | M.1.
2. Income from the sale and servicing of mutual funds and annuities in domestic offices | ////////////////// |
(included in Schedule RI, item 8) ............................................................... | 8431 0 | M.2.
3.-4. Not applicable | ////////////////// |
5. Number of full-time equivalent employees on payroll at end of current period (round to | //// Number |
nearest whole number) ........................................................................... | 4150 1,831 | M.5.
6. Not applicable | ////////////////// |
7. If the reporting bank has restated its balance sheet as a result of applying push down | //// MM DD YY |
accounting this calendar year, report the date of the bank's acquisition ........................ | 9106 00/00/00 | M.7.
8. Trading revenue (from cash instruments and off-balance sheet derivative instruments) | ////////////////// |
(sum of Memorandum items 8.a through 8.d must equal Schedule RI, item 5.c): | //// Bil Mil Thou |
a. Interest rate exposures ...................................................................... | 8757 11 | M.8.a.
b. Foreign exchange exposures ................................................................... | 8758 67 | M.8.b.
c. Equity security and index exposures .......................................................... | 8759 0 | M.8.c.
d. Commodity and other exposures ................................................................ | 8760 0 | M.8.d.
9. Impact on income of off-balance sheet derivatives held for purposes other than trading: | ////////////////// |
a. Net increase (decrease) to interest income.....................................................| 8761 (2,618)| M.9.a.
b. Net (increase) decrease to interest expense ...................................................| 8762 (2,834)| M.9.b.
c. Other (noninterest) allocations ...............................................................| 8763 0 | M.9.c.
10. Credit losses on off-balance sheet derivatives (see instructions).................................| A251 0 | M.10.

<FN>
- ------------
*Describe on Schedule RI-E--Explanations.
</FN>
</TABLE>

<PAGE> 27

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RI-4
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
-----------
</TABLE>

<TABLE>
<CAPTION>
Schedule RI-A--Changes in Equity Capital

Indicate decreases and losses in parentheses. ---------
| I483 |
---------------------
Dollar Amounts in Thousands | RIAD Bil Mil Thou |
- ------------------------------------------------------------------------------------------------------|--------------------|
<S> <C> <C>
1. Total equity capital originally reported in the December 31, 1995, Reports of Condition | ////////////////// |
and Income ...................................................................................... | 3215 1,342,473 | 1.
2. Equity capital adjustments from amended Reports of Income, net* ................................. | 3216 0 | 2.
3. Amended balance end of previous calendar year (sum of items 1 and 2) ............................ | 3217 1,342,473 | 3.
4. Net income (loss) (must equal Schedule RI, item 12) ............................................. | 4340 58,641 | 4.
5. Sale, conversion, acquisition, or retirement of capital stock, net .............................. | 4346 0 | 5.
6. Changes incident to business combinations, net .................................................. | 4356 0 | 6.
7. LESS: Cash dividends declared on preferred stock ................................................ | 4470 0 | 7.
8. LESS: Cash dividends declared on common stock ................................................... | 4460 10,922 | 8.
9. Cumulative effect of changes in accounting principles from prior years* (see instructions | ////////////////// |
for this schedule) .............................................................................. | 4411 0 | 9.
10. Corrections of material accounting errors from prior years* (see instructions for this schedule) | 4412 0 | 10.
11. Change in net unrealized holding gains (losses) on available-for-sale securities ................ | 8433 (10,978)| 11.
12. Foreign currency translation adjustments ........................................................ | 4414 0 | 12.
13. Other transactions with parent holding company* (not included in items 5, 7, or 8 above) ........ | 4415 0 | 13.
14. Total equity capital end of current period (sum of items 3 through 13) (must equal Schedule RC, | ////////////////// |
item 28) ........................................................................................ | 3210 1,379,214 | 14.
----------------------
<FN>

- ------------
*Describe on Schedule RI-E--Explanations.
</FN>
</TABLE>

<TABLE>
<CAPTION>
Schedule RI-B--Charge-offs and Recoveries and Changes
in Allowance for Loan and Lease Losses

Part I. Charge-offs and Recoveries on Loans and Leases

Part I excludes charge-offs and recoveries through the allocated transfer risk
reserve.

----------
| I486 | <-
--------------------------------- --------
| (Column A) | (Column B) |
| Charge-offs | Recoveries |
-------------------- --------------------
| Calendar year-to-date |
-----------------------------------------
Dollar Amounts in Thousands | RIAD Bil Mil Thou | RIAD Bil Mil Thou |
- ------------------------------------------------------------------------------ -------------------- --------------------
<S> <C> <C> <C>
1. Loans secured by real estate: | ////////////////// | ////////////////// |
a. To U.S. addressees (domicile) ......................................... | 4651 6,328 | 4661 3,137 | 1.a.
b. To non-U.S. addressees (domicile) ..................................... | 4652 0 | 4662 0 | 1.b.
2. Loans to depository institutions and acceptances of other banks: | ////////////////// | ////////////////// |
a. To U.S. banks and other U.S. depository institutions .................. | 4653 0 | 4663 0 | 2.a.
b. To foreign banks ...................................................... | 4654 0 | 4664 0 | 2.b.
3. Loans to finance agricultural production and other loans to farmers ...... | 4655 2 | 4665 21 | 3.
4. Commercial and industrial loans: | ////////////////// | ////////////////// |
a. To U.S. addressees (domicile) ......................................... | 4645 5,700 | 4617 1,564 | 4.a.
b. To non-U.S. addressees (domicile) ..................................... | 4646 0 | 4618 0 | 4.b.
5. Loans to individuals for household, family, and other personal | ////////////////// | ////////////////// |
expenditures: | ////////////////// | ////////////////// |
a. Credit cards and related plans ........................................ | 4656 290 | 4666 10 | 5.a.
b. Other (includes single payment, installment, and all student loans) ... | 4657 2,187 | 4667 702 | 5.b.
6. Loans to foreign governments and official institutions ................... | 4643 0 | 4627 0 | 6.
7. All other loans .......................................................... | 4644 0 | 4628 298 | 7.
8. Lease financing receivables: | ////////////////// | ////////////////// |
a. Of U.S. addressees (domicile) ......................................... | 4658 0 | 4668 0 | 8.a.
b. Of non-U.S. addressees (domicile) ..................................... | 4659 0 | 4669 0 | 8.b.
9. Total (sum of items 1 through 8) ......................................... | 4635 14,507 | 4605 5,732 | 9.
-------------------------------------------
</TABLE>

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RI-5
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
-----------
</TABLE>

Schedule RI-B--Continued

Part I. Continued

Memoranda

<TABLE>
<CAPTION>
-------------------------------------------
| (Column A) | (Column B) |
| Charge-offs | Recoveries |
------------------------------------------
| Calendar year-to-date |
-----------------------------------------
Dollar Amounts in Thousands | RIAD Bil Mil Thou | RIAD Bil Mil Thou |
- ------------------------------------------------------------------------------ -------------------- --------------------
<S> <C> <C> <C>
1-3. Not applicable | ////////////////// | ////////////////// |
4. Loans to finance commercial real estate, construction, and land | ////////////////// | ////////////////// |
development activities (not secured by real estate) included in | ////////////////// | ////////////////// |
Schedule RI-B, part I, items 4 and 7, above .............................. | 5409 71 | 5410 667 | M.4.
5. Loans secured by real estate in domestic offices (included in | ////////////////// | ////////////////// |
Schedule RI-B, part I, item1, above): | ////////////////// | ////////////////// |
a. Construction and land development ..................................... | 3582 102 | 3583 142 | M.5.a.
b. Secured by farmLand ................................................... | 3584 75 | 3585 4 | M.5.b.
c. Secured by 1-4 family residential properties: | ////////////////// | ////////////////// |
(1) Revolving, open-end loans secured by 1-4 family residential | ////////////////// | ////////////////// |
properties and extended under lines of credit ..................... | 5411 963 | 5412 0 | M.5.c.(1)
(2) All other loans secured by 1-4 family residential properties ...... | 5413 2,574 | 5414 642 | M.5.c.(2)
d. Secured by multifamily (5 or more) residential properties ............. | 3588 78 | 3589 211 | M.5.d.
e. Secured by nonfarm nonresidential properties .......................... | 3590 2,536 | 3591 2,138 | M.5.e.
|-----------------------------------------|
</TABLE>

Part II. Changes in Allowance for Loan and Lease Losses

<TABLE>
<CAPTION>
---------------------
Dollar Amounts in Thousands | RIAD Bil Mil Thou |
- --------------------------------------------------------------------------------------------------- --------------------
<S> <C> <C> <C>
1. Balance originally reported in the December 31, 1995, Reports of Condition and Income.......... | 3124 266,943 | 1.
2. Recoveries (must equal part I, item 9, column B above) ........................................ | 4605 5,732 | 2.
3. LESS: Charge-offs (must equal part I, item 9, column A above) ................................. | 4635 14,507 | 3.
4. Provision for loan and lease losses (must equal Schedule RI, item 4.a)......................... | 4230 1,911 | 4.
5. Adjustments* (see instructions for this schedule) ................................ ............ | 4815 0 | 5.
6. Balance end of current period (sum of items 1 through 5) (must equal Schedule RC, | ////////////////// |
item 4.b) ..................................................................................... | 3123 260,079 | 6.
|--------------------|

<FN>
- ------------
*Describe on Schedule RI-E--Explanations.
</FN>
</TABLE>

Schedule RI-C--Applicable Income Taxes by Taxing Authority

Schedule RI-C is to be reported with the December Report of Income.

<TABLE>
<CAPTION>
| I489 | <-
------------ --------
Dollar Amounts in Thousands | RIAD Bil Mil Thou |
- --------------------------------------------------------------------------------------------------- --------------------
<S> <C> <C> <C>
1. Federal ....................................................................................... | 4780 N/A | 1.
2. State and local................................................................................ | 4790 N/A | 2.
3. Foreign ....................................................................................... | 4795 N/A | 3.
4. Total (sum of items 1 through 3) (must equal sum of Schedule RI, items 9 and 11.b) ............ | 4770 N/A | 4.
----------------------------| |
5. Deferred portion of item 4 ........................................ | RIAD 4772 | N/A | ////////////////// | 5.
--------------------------------------------------
</TABLE>

<PAGE> 28

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RI-6
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
-----------
</TABLE>

Schedule RI-D--Income from International Operations

For all banks with foreign offices, Edge or Agreement subsidiaries, or IBFs
where international operations account for more than 10 percent of total
revenues, total assets, or net income.

Part I. Estimated Income from International Operations

<TABLE>
<CAPTION>
----------
| I492 | <-
------ --------
| Year-to-date |
------ --------------
Dollar Amounts in Thousands | RIAD Bil Mil Thou |
- ------------------------------------------------------------------------------------------------- --------------------
<S> <C> <C> <C>
1. Interest income and expense booked at foreign offices, Edge and Agreement subsidiaries, | ////////////////// |
and IBFs: | ////////////////// |
a. Interest income booked ................................................................... | 4837 N/A | 1.a.
b. Interest expense booked .................................................................. | 4838 N/A | 1.b.
c. Net interest income booked at foreign offices, Edge and Agreement subsidiaries, and IBFs | ////////////////// |
(item 1.a minus 1.b) ..................................................................... | 4839 N/A | 1.c.
2. Adjustments for booking location of international operations: | ////////////////// |
a. Net interest income attributable to international operations booked at domestic offices .. | 4840 N/A | 2.a.
b. Net interest income attributable to domestic business booked at foreign offices .......... | 4841 N/A | 2.b.
c. Net booking location adjustment (item 2.a minus 2.b) ..................................... | 4842 N/A | 2.c.
3. Noninterest income and expense attributable to international operations: | ////////////////// |
a. Noninterest income attributable to international operations .............................. | 4097 N/A | 3.a.
b. Provision for loan and lease losses attributable to international operations ............. | 4235 N/A | 3.b.
c. Other noninterest expense attributable to international operations ....................... | 4239 N/A | 3.c.
d. Net noninterest income (expense) attributable to international operations (item 3.a | ////////////////// |
minus 3.b and 3.c) ....................................................................... | 4843 N/A | 3.d.
4. Estimated pretax income attributable to international operations before capital allocation | ////////////////// |
adjustment (sum of items 1.c, 2.c, and 3.d) ................................................. | 4844 N/A | 4.
5. Adjustment to pretax income for internal allocations to international operations to reflect | ////////////////// |
the effects of equity capital on overall bank funding costs ................................. | 4845 N/A | 5.
6. Estimated pretax income attributable to international operations after capital allocation | ////////////////// |
adjustment (sum of items 4 and 5) ........................................................... | 4846 N/A | 6.
7. Income taxes attributable to income from international operations as estimated in item 6 .... | 4797 N/A | 7.
8. Estimated net income attributable to international operations (item 6 minus 7) .............. | 4341 N/A | 8.
----------------------
</TABLE>

<TABLE>
<CAPTION>
Memoranda --------------------
Dollar Amounts in Thousands | RIAD Bil Mil Thou |
- ------------------------------------------------------------------------------------------------- --------------------
<S> <C> <C> <C>
1. Intracompany interest income included in item 1.a above ..................................... | 4847 N/A | M.1.
2. Intracompany interest expense included in item 1.b above .................................... | 4848 N/A | M.2.
----------------------
</TABLE>

Part II. Supplementary Details on Income from International Operations Required
by the Departments of Commerce and Treasury for Purposes of the U.S.
International Accounts and the U.S. National Income and Product Accounts

<TABLE>
<CAPTION>
--------------
| Year-to-date |
------ --------------
Dollar Amounts in Thousands | RIAD Bil Mil Thou |
- ------------------------------------------------------------------------------------------------- --------------------
<S> <C> <C> <C>
1. Interest income booked at IBFs .............................................................. | 4849 N/A | 1.
2. Interest expense booked at IBFs ............................................................. | 4850 N/A | 2.
3. Noninterest income attributable to international operations booked at domestic offices | ////////////////// |
(excluding IBFs): | ////////////////// |
a. Gains (losses) and extraordinary items ................................................... | 5491 N/A | 3.a.
b. Fees and other noninterest income ........................................................ | 5492 N/A | 3.b.
4. Provision for loan and lease losses attributable to international operations booked at | ////////////////// |
domestic offices (excluding IBFs) ........................................................... | 4852 N/A | 4.
5. Other noninterest expense attributable to international operations booked at domestic offices | ////////////////// |
(excluding IBFs) ............................................................................ | 4853 N/A | 5.
--------------------
</TABLE>

<PAGE> 29

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RI-7
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
-----------
</TABLE>

Schedule RI-E--Explanations

Schedule RI-E is to be completed each quarter on a calendar year-to-date basis.

Detail all adjustments in Schedules RI-A and RI-B, all extraordinary items and
other adjustments in Schedule RI, and all significant items of other noninterest
income and other noninterest expense in Schedule RI. (See instructions for
details.)

<TABLE>
<CAPTION>
--------
| I495 | <-
------ --------
| Year-to-date |
------ --------------
Dollar Amounts in Thousands | RIAD Bil Mil Thou |
- -------------------------------------------------------------------------------------------------- --------------------
<S> <C> <C> <C>
1. All other noninterest income (from Schedule RI, item 5.f.(2)) | ////////////////// |
Report amounts that exceed 10% of Schedule RI, item 5.f.(2): | ////////////////// |
a. Net gains on other real estate owned ..................................................... | 5415 0 | 1.a.
b. Net gains on sales of loans .............................................................. | 5416 0 | 1.b.
c. Net gains on sales of premises and fixed assets .......................................... | 5417 0 | 1.c.
Itemize and describe the three largest other amounts that exceed 10% of | ////////////////// |
Schedule RI, item 5.f.(2): | ////////////////// |
-------------
d. | TEXT 4461 |------------------------------------------------------------------------------| |
------------- Gain on Sale of Branches 4461 27,961 1.d.

e. | TEXT 4462 |------------------------------------------------------------------------------| 4462 | 1.e.
------------ 4463 1.f.

f. | TEXT 4463 |------------------------------------------------------------------------------| |

------------
2. Other noninterest expense (from Schedule RI, item 7.c): | ////////////////// |
a. Amortization expense of intangible assets ................................................ | 4531 5,424 | 2.a.
Report amounts that exceed 10% of Schedule RI, item 7.c: | ////////////////// |
b. Net losses on other real estate owned .................................................... | 5418 0 | 2.b.
c. Net losses on sales of loans ............................................................. | 5419 0 | 2.c.
d. Net losses on sales of premises and fixed assets ......................................... | 5420 0 | 2.d.
Itemize and describe the three largest other amounts that exceed 10% of | ////////////////// |
Schedule RI, item 7.c: | ////////////////// |

-------------
e. | TEXT 4464 |------------------------------------------------------------------------------| |
------------- Intercompany Data Processing & Programming Charges 4464 19,616 2.e.

f. | TEXT 4467 |------------------------------------------------------------------------------| 4467 11,457 | 2.f.
------------- Intercompany Corporate Support Function Charges 4468 2.g.

g. | TEXT 4468 |------------------------------------------------------------------------------| |
-------------
3. Extraordinary items and other adjustments (from Schedule RI, item 11.a) and | ////////////////// |
applicable income tax effect (from Schedule RI, item 11.b) (itemize and describe | ////////////////// |
all extraordinary items and other adjustments): | ////////////////// |

-------------
a. (1) | TEXT 4469 |--------------------------------------------------------------------------| 4469 | 3.a.(1)
-------------
(2) Applicable income tax effect | RIAD 4486 | | ////////////////// | 3.a.(2)
------------- ----------------------------
b. (1) | TEXT 4487 |--------------------------------------------------------------------------| 4487 | 3.b.(1)
-------------
(2) Applicable income tax effect | RIAD 4488 | | ////////////////// | 3.b.(2)
------------- ----------------------------
c. (1) | TEXT 4489 |--------------------------------------------------------------------------| 4489 | 3.c.(1)
-------------
(2) Applicable income tax effect | RIAD 4491 | | ////////////////// | 3.c.(2)
----------------------------
4. Equity capital adjustments from amended Reports of Income (from Schedule RI-A, | ////////////////// |
item 2) (itemize and describe all adjustments): | ////////////////// |

-------------
a. | TEXT 4492 |------------------------------------------------------------------------------| 4492 | 4.a.
-----------
b. | TEXT 4493 |------------------------------------------------------------------------------| 4493 | 4.b.
-------------
5. Cumulative effect of changes in accounting principles from prior years (from | ////////////////// |
Schedule RI-A, item 9) (itemize and describe all changes in accounting principles): | ////////////////// |

-------------
a. | TEXT 4494 |------------------------------------------------------------------------------| 4494 | 5.a.
-----------
b. | TEXT 4495 |------------------------------------------------------------------------------| 4495 | 5.b.
-------------
6. Corrections of material accounting errors from prior years (from Schedule RI-A, | ////////////////// |
item 10) (itemize and describe all corrections): | ////////////////// |

-------------
a. | TEXT 4496 |------------------------------------------------------------------------------| 4496 | 6.a.
-----------
b. | TEXT 4497 |------------------------------------------------------------------------------| 4497 | 6.b.
-------------
----------------------
</TABLE>

<PAGE> 30

Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RI-8
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
-----------
</TABLE>

Schedule RI-E--Continued

-------------
a. | TEXT 4498 |------------------------------------------------------------------------------| 4498 | 7.a.
-----------
b. | TEXT 4499 |------------------------------------------------------------------------------| 4499 | 7.b.
-------------
8. Adjustments to allowance for loan and lease losses (from Schedule RI-B, part II, | ////////////////// |
item 5) (itemize and describe all adjustments): | ////////////////// |

-------------
a. | TEXT 4521 |
|------------------------------------------------------------------------------| 4521 | 8.a.
-------------
b. | TEXT 4522 |------------------------------------------------------------------------------| 4522 | 8.b.
-------------
--------------------
9. Other explanations (the space below is provided for the bank to briefly describe, | I498 | I499 | <-
----------------------
at its option, any other significant items affecting the Report of Income):

---
No comment |X| (RIAD 4769)
---
Other explanations (please type or print clearly):
(TEXT 4769)

</TABLE>

<PAGE> 31

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-1
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>

Consolidated Report of Condition for Insured Commercial
and State-Chartered Savings Banks for March 31, 1996

All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.

Schedule RC--Balance Sheet
<TABLE>
<CAPTION>

| C400 | <-
____________ ________
Dollar Amounts in Thousands | RCFD Bil Mil Thou |
__________________________________________________________________________________________________ ____________________
<S> <C> <C>
ASSETS | ////////////////// |
1. Cash and balances due from depository institutions (from Schedule RC-A): | ////////////////// |
a. Noninterest-bearing balances and currency and coin(1) ................................... | 0081 644,422 | 1.a.
b. Interest-bearing balances(2) ............................................................ | 0071 175 | 1.b.
2. Securities: | ////////////////// |
a. Held-to-maturity securities (from Schedule RC-B, column A) .............................. | 1754 3,192 | 2.a.
b. Available-for-sale securities (from Schedule RC-B, column D) ............................ | 1773 1,806,430 | 2.b.
3. Federal funds sold and securities purchased under agreements to resell in domestic offices | ////////////////// |
of the bank and of its Edge and Agreement subsidiaries, and in IBFs: | ////////////////// |
a. Federal funds sold ...................................................................... | 0276 0 | 3.a.
b. Securities purchased under agreements to resell ......................................... | 0277 0 | 3.b.
4. Loans and lease financing receivables: ____________________________| ////////////////// |
a. Loans and leases, net of unearned income (from Schedule RC-C) | RCFD 2122 | 10,679,728 | ////////////////// | 4.a.
b. LESS: Allowance for loan and lease losses ................... | RCFD 3123 | 260,079 | ////////////////// | 4.b.
c. LESS: Allocated transfer risk reserve ....................... | RCFD 3128 | 0 | ////////////////// | 4.c.
____________________________
d. Loans and leases, net of unearned income, | ////////////////// |
allowance, and reserve (item 4.a minus 4.b and 4.c) ..................................... | 2125 10,419,649 | 4.d.
5. Trading assets (from schedule RC-D )........................................................ | 3545 484 | 5.
6. Premises and fixed assets (including capitalized leases) ................................... | 2145 146,450 | 6.
7. Other real estate owned (from Schedule RC-M) ............................................... | 2150 871 | 7.
8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M) ... | 2130 0 | 8.
9. Customers' liability to this bank on acceptances outstanding ............................... | 2155 6,513 | 9.
10. Intangible assets (from Schedule RC-M) ..................................................... | 2143 283,894 | 10.
11. Other assets (from Schedule RC-F) .......................................................... | 2160 615,485 | 11.
12. Total assets (sum of items 1 through 11) ................................................... | 2170 13,927,565 | 12.
______________________
<FN>
____________
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
</FN>
</TABLE>

<PAGE> 32

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-2
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC--Continued
___________________________
Dollar Amounts in Thousands | ///////// Bil Mil Thou |
_______________________________________________________________________________________________ _________________________
<S> <C> <C>
LIABILITIES | /////////////////////// |
13. Deposits: | /////////////////////// |
a. In domestic offices (sum of totals of columns A and C from Schedule RC-E, part I) ..... | RCON 2200 8,134,739 | 13.a.
____________________________
(1) Noninterest-bearing(1) ................................ | RCON 6631 2,366,568 | /////////////////////// | 13.a.(1)
(2) Interest-bearing ...................................... | RCON 6636 5,768,171 | /////////////////////// | 13.a.(2)
____________________________
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from Schedule RC-E, | /////////////////////// |
part II) .............................................................................. | RCFN 2200 261,352 | 13.b.
____________________________
(1) Noninterest-bearing ................................... | RCFN 6631 0 | /////////////////////// | 13.b.(1)
(2) Interest-bearing ...................................... | RCFN 6636 261,352 | /////////////////////// | 13.b.(2)
____________________________
14. Federal funds purchased and securities sold under agreements to repurchase in domestic | /////////////////////// |
offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs: | /////////////////////// |
a. Federal funds purchased ............................................................... | RCFD 0278 2,009,304 | 14.a.
b. Securities sold under agreements to repurchase ........................................ | RCFD 0279 55,853 | 14.b.
15. a. Demand notes issued to the U.S. Treasury .............................................. | RCON 2840 170,257 | 15.a.
b. Trading liabilities (from Schedule RC-D) .............................................. | RCFD 3548 460 | 15.b.
16. Other borrowed money: | /////////////////////// |
a. With a remaining maturity of one year or less.......................................... | RCFD 2332 954,145 | 16.a.
b. With a remaining maturity of more than one year........................................ | RCFD 2333 143,887 | 16.b.
17. Mortgage indebtedness and obligations under capitalized leases ........................... | RCFD 2910 8,762 | 17.
18. Bank's liability on acceptances executed and outstanding ................................. | RCFD 2920 6,513 | 18.
19. Subordinated notes and debentures ........................................................ | RCFD 3200 440,000 | 19.
20. Other liabilities (from Schedule RC-G) ................................................... | RCFD 2930 363,079 | 20.
21. Total liabilities (sum of items 13 through 20) ........................................... | RCFD 2948 12,548,351 | 21.
| /////////////////////// |
22. Limited-life preferred stock and related surplus ......................................... | RCFD 3282 0 | 22.
EQUITY CAPITAL | /////////////////////// |
23. Perpetual preferred stock and related surplus ............................................ | RCFD 3838 125,000 | 23.
24. Common stock ............................................................................. | RCFD 3230 19,487 | 24.
25. Surplus (exclude all surplus related to preferred stock).................................. | RCFD 3839 955,984 | 25.
26. a. Undivided profits and capital reserves ................................................ | RCFD 3632 286,513 | 26.a.
b. Net unrealized holding gains (losses) on available-for-sale securities ................ | RCFD 8434 (7,770)| 26.b.
27. Cumulative foreign currency translation adjustments ...................................... | RCFD 3284 0 | 27.
28. Total equity capital (sum of items 23 through 27) ........................................ | RCFD 3210 1,379,214 | 28.
29. Total liabilities, limited-life preferred stock, and equity capital (sum of items 21, 22, | /////////////////////// |
and 28) .................................................................................. | RCFD 3300 13,927,565 | 29.
___________________________
</TABLE>
<TABLE>
<CAPTION>
Memorandum
To be reported only with the March Report of Condition.
1. Indicate in the box at the right the number of the statement below that best describes the Number
most comprehensive level of auditing work performed for the bank by independent external __________________
auditors as of any date during 1995 ............................................................... | RCFD 6724 2 | M.1.
__________________
<S> <C>
1 = Independent audit of the bank conducted in accordance 4 = Directors' examination of the bank performed by other
with generally accepted auditing standards by a certified external auditors (may be required by state chartering
public accounting firm which submits a report on the bank authority)
2 = Independent audit of the bank's parent holding company 5 = Review of the bank's financial statements by external
conducted in accordance with generally accepted auditing auditors
standards by a certified public accounting firm which 6 = Compilation of the bank's financial statements by external
submits a report on the consolidated holding company auditors
(but not on the bank separately) 7 = Other audit procedures (excluding tax preparation work)
3 = Directors' examination of the bank conducted in 8 = No external audit work
accordance with generally accepted auditing standards
by a certified public accounting firm (may be required by
state chartering authority)
<FN>
____________
(1) Includes total demand deposits and noninterest-bearing time and savings deposits.
</FN>
</TABLE>

<PAGE> 33

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-3
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-A--Cash and Balances Due From Depository Institutions
Exclude assets held for trading.
__________
| C405 | <-
_________________________________ ________
| (Column A) | (Column B) |
| Consolidated | Domestic |
| Bank | Offices |
____________________ ____________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCON Bil Mil Thou |
_____________________________________________________________________________ ____________________ ____________________
<S> <C> <C> <C>
1. Cash items in process of collection, unposted debits, and currency and | ////////////////// | ////////////////// |
coin .................................................................... | 0022 553,818 | ////////////////// | 1.
a. Cash items in process of collection and unposted debits .............. | ////////////////// | 0020 418,841 | 1.a.
b. Currency and coin .................................................... | ////////////////// | 0080 134,977 | 1.b.
2. Balances due from depository institutions in the U.S. ................... | ////////////////// | 0082 89,741 | 2.
a. U.S. branches and agencies of foreign banks (including their IBFs) ... | 0083 0 | ////////////////// | 2.a.
b. Other commercial banks in the U.S. and other depository institutions | ////////////////// | ////////////////// |
in the U.S. (including their IBFs) ................................... | 0085 89,741 | ////////////////// | 2.b.
3. Balances due from banks in foreign countries and foreign central banks .. | ////////////////// | 0070 1,038 | 3.
a. Foreign branches of other U.S. banks ................................. | 0073 0 | ////////////////// | 3.a.
b. Other banks in foreign countries and foreign central banks ........... | 0074 1,038 | ////////////////// | 3.b.
4. Balances due from Federal Reserve Banks ................................. | 0090 0 | 0090 0 | 4.
5. Total (sum of items 1 through 4) (total of column A must equal | ////////////////// | ////////////////// |
Schedule RC, sum of items 1.a and 1.b) .................................. | 0010 644,597 | 0010 644,597 | 5.
___________________________________________
<CAPTION>
______________________
Memorandum Dollar Amounts in Thousands | RCON Bil Mil Thou |
__________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Noninterest-bearing balances due from commercial banks in the U.S. (included in item 2, | ////////////////// |
column B above) .............................................................................. | 0050 89,566 | M.1.
______________________
</TABLE>

Schedule RC-B--Securities
Exclude assets held in trading accounts.
<TABLE>
<CAPTION>

_______
| C410 |

___________________________________________________________________________ ________
| Held-to-maturity | Available-for-sale |
_________________________________________ _________________________________________
| (Column A) | (Column B) | (Column C) | (Column D) |
| Amortized Cost | Fair Value | Amortized Cost | Fair Value(1) |
____________________ ____________________ ____________________ ____________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou |
______________________________________ ____________________ ____________________ ____________________ ____________________
<S> <C> <C> <C> <C> <C>
1. U.S. Treasury securities ......... | 0211 250 | 0213 250 | 1286 843,487 | 1287 829,503 | 1.
2. U.S. Government agency | ////////////////// | ////////////////// | ////////////////// | ////////////////// |
and corporation obligations | ////////////////// | ////////////////// | ////////////////// | ////////////////// |
(exclude mortgage-backed | ////////////////// | ////////////////// | ////////////////// | ////////////////// |
securities): | ////////////////// | ////////////////// | ////////////////// | ////////////////// |
a. Issued by U.S. Govern- | ////////////////// | ////////////////// | ////////////////// | ////////////////// |
ment agencies(2) .............. | 1289 0 | 1290 0 | 1291 0 | 1293 0 | 2.a.
b. Issued by U.S. | ////////////////// | ////////////////// | ////////////////// | ////////////////// |
Government-sponsored | ////////////////// | ////////////////// | ////////////////// | ////////////////// |
agencies(3) ................... | 1294 0 | 1295 0 | 1297 0 | 1298 0 | 2.b.
_____________________________________________________________________________________
<FN>
_____________
(1) Includes equity securities without readily determinable fair values at historical cost in item 6.c, column D.
(2) Includes Small Business Administration "Guaranteed Loan Pool Certificates," U.S. Maritime Administration obligations, and
Export-Import Bank participation certificates.
(3) Includes obligations (other than mortgage-backed securities) issued by the Farm Credit System, the Federal Home
Loan Bank System, the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, the Financing
Corporation, Resolution Funding Corporation, the Student Loan Marketing Association, and the Tennessee Valley Authority.
</FN>
</TABLE>

<PAGE> 34

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-4
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-B--Continued

_____________________________________________________________________________________
| Held-to-maturity | Available-for-sale |
_________________________________________ _________________________________________
| (Column A) | (Column B) | (Column C) | (Column D) |
| Amortized Cost | Fair Value | Amortized Cost | Fair Value(1) |
____________________ ____________________ ____________________ ____________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou |
____________________________________ ____________________ ____________________ ____________________ ____________________
<S> <C> <C> <C> <C>
3. Securities issued by states | ////////////////// |/ //////////////// | ////////////////// | ///////////////// |
and political subdivisions | ////////////////// |////////////////// | ////////////////// | ///////////////// |
in the U.S.: | ////////////////// |////////////////// | ////////////////// | ////////// ////// |
a. General obligations ......... | 1676 0 |1677 0 | 1678 0 | 1679 0 | 3.a.
b. Revenue obligations ......... | 1681 42 |1686 45 | 1690 0 | 1691 0 | 3.b.
c. Industrial development ...... | ////////////////// |////////////////// | ////////////////// | ///////////////// |
and similiar obligations ........| 1694 0 |1695 0 | 1696 0 | 1697 0 | 3.c.
4. Mortgage-backed: | ////////////////// |////////////////// | ////////////////// | ///////////////// |
securities (MBS): | ////////////////// |////////////////// | ////////////////// | ///////////////// |
a. Pass-through securities: | ////////////////// |////////////////// | ////////////////// | ///////////////// |
(1) Guaranteed by | ////////////////// |////////////////// | ////////////////// | ///////////////// |
GNMA ....................... | 1698 0 |1699 0 | 1701 849 | 1702 849 | 4.a.(1)
(2) Issued by FNMA | ////////////////// |////////////////// | ////////////////// | ///////////////// |
and FHLMC ................. | 1703 0 |1705 0 | 1706 847,095 | 1707 849,756 | 4.a.(2)
(3) Other pass-through | ////////////////// |////////////////// | ///////////////////| ///////////////// |
secruities ................. | 1709 0 |1710 0 | 1711 0 | 1713 0 | 4.a.(3)
b. Other mortgage-backed | ////////////////// |////////////////// | ////////////////// | ///////////////// |
securities (include CMO's, | ////////////////// |////////////////// | ////////////////// | ///////////////// |
REMICs, and stripped | ////////////////// |////////////////// | ////////////////// | ///////////////// |
MBS): | ////////////////// |////////////////// | ////////////////// | ///////////////// |
(1) Issued or guaranteed | ////////////////// |////////////////// | ////////////////// | ///////////////// |
by FNMA, FHLMC, | ////////////////// |////////////////// | ////////////////// | ///////////////// |
or GNMA ............... | 1714 0 |1715 0 | 1716 0 | 1717 0 | 4.b.(1)
(2) Collateralized | ////////////////// |////////////////// | ////////////////// | ///////////////// |
by MBS issued or | ////////////////// |////////////////// | ////////////////// | ///////////////// |
guaranteed by FNMA | ////////////////// |////////////////// | ////////////////// | ///////////////// |
FHLMC, or GNMA ........ | 1718 0 |1719 0 | 1731 0 | 1732 0 | 4.b.(2)
(3) All other mortgage- | ////////////////// |////////////////// | ////////////////// | //////////////// |
backed securities ..... | 1733 0 |1734 0 | 1735 0 | 1736 0 | 4.b.(3)
5. Other debt securities: | ////////////////// |////////////////// | ////////////////// | ///////////////// |
a. Other domestic debt | ////////////////// |////////////////// | ////////////////// | ///////////////// |
securities | 1737 0 |1738 0 | 1739 478 | 1741 475 | 5.a.
b. Foreign debt | ////////////////// |////////////////// | ////////////////// | ///////////////// |
securities ................. | 1742 2,900 |1743 2,900 | 1744 0 | 1746 0 | 5.b.
6. Equity securities: | ////////////////// |////////////////// | ////////////////// | ///////////////// |
a. Investments in mutual | ////////////////// |////////////////// | ////////////////// | ///////////////// |
funds ...................... | ////////////////// |////////////////// | 1747 9,427 | 1748 9,427 | 6.a.
b. Other equity securities | ////////////////// |////////////////// | ////////////////// | ///////////////// |
with readily determin- | ////////////////// |////////////////// | ////////////////// | ///////////////// |
able fair values ........... | ////////////////// |////////////////// | 1749 0 | 1751 0 | 6.b.
c. All other equity | ////////////////// |////////////////// | ////////////////// | ///////////////// |
securities (1) ............. | ////////////////// |////////////////// | 1752 116,420 | 1753 116,420 | 6.c.
7. Total (sum of items 1 | ////////////////// |////////////////// | ////////////////// | ///////////////// |
through 6) (total of | ////////////////// |////////////////// | ////////////////// | ///////////////// |
column A must equal | ////////////////// |////////////////// | ////////////////// | ///////////////// |
Schedule RC, item 2.a) | ////////////////// |////////////////// | ////////////////// | ///////////////// |
(total of column D must | ////////////////// |////////////////// | ////////////////// | ///////////////// |
equal Schedule RC, | ////////////////// |////////////////// | ////////////////// | ///////////////// |
item 2.b) ..................... | 1754 3,192 | 1771 3,195 | 1772 1,817,756 | 1773 1,806,430 | 7.
____________ |__________________________________________________________________________________|
1) Includes equity securities without readily determinable fair values at historical cost in item 6.c, column D.

</TABLE>
14

<PAGE> 35

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-5
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>

<TABLE>
<CAPTION>
Schedule RC-B--Continued

___________
Memoranda | C412 | <-
___________ _________
Dollar Amounts in Thousands | RCFD Bil Mil Thou |
__________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Pledged securities(2) ......................................................................... | 0416 934,681 | M.1.
2. Maturity and repricing data for debt securities(2)(3)(4) (excluding those in nonaccrual status):| ////////////////// |
a. Fixed rate debt securities with a remaining maturity of: | ////////////////// |
(1) Three months or less ................................................................... | 0343 5,621 | M.2.a.(1)
(2) Over three months through 12 months .................................................... | 0344 0 | M.2.a.(2)
(3) Over one year through five years ....................................................... | 0345 1,548,431 | M.2.a.(3)
(4) Over five years ........................................................................ | 0346 27,232 | M.2.a.(4)
(5) Total fixed rate debt securities (sum of Memorandum items 2.a.(1) through 2.a.(4)) ..... | 0347 1,581,284 | M.2.a.(5)
b. Floating rate debt securities with a repricing frequency of: | ////////////////// |
(1) Quarterly or more frequently ........................................................... | 4544 99,741 | M.2.b.(1)
(2) Annually or more frequently, but less frequently than quarterly ........................ | 4545 2,750 | M.2.b.(2)
(3) Every five years or more frequently, but less frequently than annually ................. | 4551 0 | M.2.b.(3)
(4) Less frequently than every five years .................................................. | 4552 0 | M.2.b.(4)
(5) Total floating rate debt securities (sum of Memorandum items 2.b.(1) through 2.b.(4)) .. | 4553 102,491 | M.2.b.(5)
c. Total debt securities (sum of Memorandum items 2.a.(5) and 2.b.(5)) (must equal total debt | ////////////////// |
securities from Schedule RC-B, sum of items 1 through 5, columns A and D, minus nonaccrual | ////////////////// |
debt securities included in Schedule RC-N, item 9, column C) ............................... | 0393 1,683,775 | M.2.c.
3. Not applicable | ////////////////// |
4. Held-to-maturity debt securities restructured and in compliance with modified terms (included | ////////////////// |
in Schedule RC-B, items 3 through 5, column A, above) ......................................... | 5365 0 | M.4.
5. Not applicable | ////////////////// |
6. Floating rate debt securities with a remaining maturity of one year or less(2)(4) (included in | ////////////////// |
Memorandum items 2.b(1) through 2.b.(4) above)................................................. | 5519 1,000 | M.6.
7. Amortized cost of held-to-maturity securities sold or transferred to available-for-sale or | ////////////////// |
trading securities during the calendar year-to-date (report the amortized cost at date of sale. | ////////////////// |
or transfer ................................................................................... | 1778 0 | m.7.
8. High-Risk mortgage securities (included in the held-to-maturity and available-for-sale | ////////////////// |
accounts in Schedule RC-B, item 4.b): | ////////////////// |
a. Amortized cost ............................................................................. | 8780 0 | M.8.a.
b. Fair Value ................................................................................. | 8781 0 | M.8.b.
9. Structured notes (included in the held-to-maturity and available-for-sale accounts in | ////////////////// |
Schedule RC-B, items.2, 3, and 5): | ////////////////// |
a. Amortized cost ............................................................................. | 8782 0 | M.9.a.
b. Fair Value ................................................................................. | 8783 0 | M.9.b.
----------------------
<FN>
____________
(2) Includes held-to-maturity securities at amortized cost and available-for-sale securities at fair value.
(3) Exclude equity securities, e.g., investments in mutual funds, Federal Reserve stock, common stock, and preferred stock.
(4) Memorandum items 2 and 6 are not applicable to savings banks that must complete supplemental Schedule RC-J.
</FN>
</TABLE>

<PAGE> 36
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT
Address: 777 MAIN STREET Call Date: 3/31/96 ST-BK: 09-0590 FFIEC 031
City, State Zip: HARTFORD, CT 06115 Page RC-6
</TABLE>

<TABLE>
<CAPTION>
Schedule RC-C--Loans and Lease Financing Receivables

Part I. Loans and Leases

Do not deduct the allowance for loan and lease losses from amounts __________
reported in this schedule. Report total loans and leases, net of unearned _________________________________| C415 | <-
income. Exclude assets held for trading. | (Column A) | (Column B) |
| Consolidated | Domestic |
| Bank | Offices |
____________________ ____________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCON Bil Mil Thou |
_____________________________________________________________________________ ____________________ ____________________
<S> <C> <C> <C>
1. Loans secured by real estate ........................................... | 1410 3,574,653 | ////////////////// | 1.
a. Construction and land development ................................... | ////////////////// | 1415 51,282 | 1.a.
b. Secured by farmland (including farm residential and other | ////////////////// | ////////////////// |
improvements) ....................................................... | ////////////////// | 1420 307 | 1.b.
c. Secured by 1-4 family residential properties: | ////////////////// | ////////////////// |
(1) Revolving, open-end loans secured by 1-4 family residential | ////////////////// | ////////////////// |
properties and extended under lines of credit ................... | ////////////////// | 1797 325,605 | 1.c.(1)
(2) All other loans secured by 1-4 family residential properties: | ////////////////// | ////////////////// |
(a) Secured by first liens ...................................... | ////////////////// | 5367 2,073,517 | 1.c.(2)(a)
(b) Secured by junior liens ..................................... | ////////////////// | 5368 172,054 | 1.c.(2)(b)
d. Secured by multifamily (5 or more) residential properties ........... | ////////////////// | 1460 65,430 | 1.d.
e. Secured by nonfarm nonresidential properties ........................ | ////////////////// | 1480 886,458 | 1.e.
2. Loans to depository institutions: | ////////////////// | ////////////////// |
a. To commercial banks in the U.S. ..................................... | ////////////////// | 1505 204,042 | 2.a.
(1) To U.S. branches and agencies of foreign banks .................. | 1506 0 | ////////////////// | 2.a.(1)
(2) To other commercial banks in the U.S. ........................... | 1507 204,042 | ////////////////// | 2.a.(2)
b. To other depository institutions in the U.S. ........................ | 1517 0 | 1517 0 | 2.b.
c. To banks in foreign countries ....................................... | ////////////////// | 1510 0 | 2.c.
(1) To foreign branches of other U.S. banks ......................... | 1513 0 | ////////////////// | 2.c.(1)
(2) To other banks in foreign countries ............................. | 1516 0 | ////////////////// | 2.c.(2)
3. Loans to finance agricultural production and other loans to farmers .... | 1590 1,568 | 1590 1,568 | 3.
4. Commercial and industrial loans: | ////////////////// | ////////////////// |
a. To U.S. addressees (domicile) ....................................... | 1763 5,397,715 | 1763 5,397,715 | 4.a.
b. To non-U.S. addressees (domicile) ................................... | 1764 0 | 1764 0 | 4.b.
5. Acceptances of other banks: | ////////////////// | ////////////////// |
a. Of U.S. banks ....................................................... | 1756 1,538 | 1756 1,538 | 5.a.
b. Of foreign banks .................................................... | 1757 0 | 1757 0 | 5.b.
6. Loans to individuals for household, family, and other personal | ////////////////// | ////////////////// |
expenditures (i.e., consumer loans) (includes purchased paper) ......... | ////////////////// | 1975 548,048 | 6.
a. Credit cards and related plans (includes check credit and other | ////////////////// | ////////////////// |
revolving credit plans) ............................................. | 2008 25,114 | ////////////////// | 6.a.
b. Other (includes single payment, installment, and all student loans) . | 2011 522,934 | ////////////////// | 6.b.
7. Loans to foreign governments and official institutions (including | ////////////////// | ////////////////// |
foreign central banks) ................................................. | 2081 0 | 2081 0 | 7.
8. Obligations (other than securities and leases) of states and political | ////////////////// | ////////////////// |
subdivisions in the U.S. (includes nonrated industrial development | ////////////////// | ////////////////// |
obligations) ........................................................... | 2107 27,864 | 2107 27,864 | 8.
9. Other loans ............................................................ | 1563 934,616 | ////////////////// | 9.
a. Loans for purchasing or carrying securities (secured and unsecured) . | ////////////////// | 1545 155,278 | 9.a.
b. All other loans (exclude consumer loans) ............................ | ////////////////// | 1564 779,338 | 9.b.
10. Lease financing receivables (net of unearned income) ................... | ////////////////// | 2165 7,297 | 10.
a. Of U.S. addressees (domicile) ....................................... | 2182 7,297 | ////////////////// | 10.a.
b. Of non-U.S. addressees (domicile) ................................... | 2183 0 | ////////////////// | 10.b.
11. LESS: Any unearned income on loans reflected in items 1-9 above ........ | 2123 17,613 | 2123 17,613 | 11.
12. Total loans and leases, net of unearned income (sum of items 1 through | ////////////////// | ////////////////// |
10 minus item 11) (total of column A must equal Schedule RC, item 4.a) . | 2122 10,679,728 | 2122 10,679,728 | 12.
___________________________________________
</TABLE>

<PAGE> 37

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC031
Address: 777 MAIN STREET Page: RC-7
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>

<TABLE>
<CAPTION>
Schedule RC-C--Continued

Part I. Continued
___________________________________________
| (Column A) | (Column B) |
| Consolidated | Domestic |
Memoranda | Bank | Offices |
____________________ ____________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCON Bil Mil Thou |
_____________________________________________________________________________ ____________________ ____________________
<S> <C> <C> <C>
1. Commercial paper included in Schedule RC-C, part I, above .............. | 1496 0 | 1496 0 | M.1.
2. Loans and leases restructured and in compliance with modified terms | ////////////////// | ////////////////// |
(included in Schedule RC-C, part I, above and not reported as past due | ////////////////// | ////////////////// |
or nonaccrual in Schedule RC-N, Memorandum item 1): | ////////////////// | ////////////////// |
a. Loans secured by real estate: | ////////////////// | ////////////////// |
(1) To U.S. addressees (domicile) ................................... | 1687 19,431 | M.2.a.(1)
(2) To non-U.S. addressees (domicile) ............................... | 1689 0 | M.2.a.(2)
b. All other loans and all lease financing receivables (exclude loans | ////////////////// |
to individuals for household, family, and other personal expenditures)| 8691 0 | M.2.b.
c. Commercial and industrial loans to and lease financing receivables | ////////////////// |
of non-U.S. addressees (domicile) included in Memorandum item 2.b | ////////////////// |
above ............................................................... | 8692 0 | M.2.c.
3. Maturity and repricing data for loans and leases(1) (excluding those | ////////////////// |
in nonaccrual status): | ////////////////// |
a. Fixed rate loans and leases with a remaining maturity of: | ////////////////// |
(1) Three months or less ............................................ | 0348 4,174,641 | M.3.a.(1)
(2) Over three months through 12 months ............................. | 0349 85,961 | M.3.a.(2)
(3) Over one year through five years ................................ | 0356 965,740 | M.3.a.(3)
(4) Over five years ................................................. | 0357 1,877,648 | M.3.a.(4)
(5) Total fixed rate loans and leases (sum of | ////////////////// |
Memorandum items 3.a.(1) through 3.a.(4)) ....................... | 0358 7,103,990 | M.3.a.(5)
b. Floating rate loans with a repricing frequency of: | ////////////////// |
(1) Quarterly or more frequently .................................... | 4554 2,937,472 | M.3.b.(1)
(2) Annually or more frequently, but less frequently than quarterly . | 4555 547,425 | M.3.b.(2)
(3) Every five years or more frequently, but less frequently than | ////////////////// |
annually ........................................................ | 4561 20,958 | M.3.b.(3)
(4) Less frequently than every five years ........................... | 4564 0 | M.3.b.(4)
(5) Total floating rate loans (sum of Memorandum items 3.b.(1) | ////////////////// |
through 3.b.(4)) ................................................ | 4567 3,505,855 | M.3.b.(5)
c. Total loans and leases (sum of Memorandum items 3.a.(5) and 3.b.(5)) | ////////////////// |
(must equal the sum of total loans and leases, net, from | ////////////////// |
Schedule RC-C, part I, item 12, plus unearned income from | ////////////////// |
Schedule RC-C, part I, item 11, minus total nonaccrual loans and | ////////////////// |
leases from Schedule RC-N, sum of items 1 through 8, column C) ...... | 1479 10,609,845 | M.3.c.
d. Floating rate loans with a remaining maturity of one year or less | ////////////////// |
(included in Memorandum items 3.b.(1) through 3.b.(4) above)......... | A246 277,721 | M.3.d.
4. Loans to finance commercial real estate, construction, and land | ////////////////// |
development activities (not secured by real estate) included in | ////////////////// |
Schedule RC-C, part I, items 4 and 9, column A, page RC-6(2) ........... | 2746 47,652 | M.4.
5. Loans and leases held for sale (included in Schedule RC-C, part I, | ////////////////// |
above .................................................................. | 5369 0 | M.5.
6. Adjustable rate closed-end loans secured by first liens on 1-4 family | ////////////////// |_____________________
residential properties (included in Schedule RC-C, part I, item | ////////////////// | RCON Bil Mil Thou |
| ////////////////// |____________________
1.c.(2)(a), column B, page RC-6) ....................................... | ////////////////// | 5370 425,358 | M.6.
___________________________________________
<FN>
_____________________________
(1) Memorandum item 3 is not applicable to savings banks that must complete supplememtal Schedule RC-J.
(2) Exclude loans secured by real estate that are included in Schedule RC-C, part I, item 1, column A.
</FN>
</TABLE>

<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-8
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________

Schedule RC-D--Trading Assets and Liabilities _________

Schedule RC-D is to be completed only by banks with $1 billion or more intotal assets or with $2 billion or more in par/notional
amount of off-balance sheet derivative contracts (as reported in Schedule RC-L, items 14.a through 14.e, columns A through D).

| C420 |
Dollar Amounts in Thousands ////////// Bil Mil Thou
__________________________________________________________________________________________________ _______________|________|
<S> <C> <C>
ASSETS | /////////////////////// |
1. U.S. Treasury securities in domestic offices ................................................ | RCON 3531 0 | 1.
2. U.S. Government agency and corporation obligations in domestic offices (exclude mortgage- | /////////////////////// |
backed securities) .......................................................................... | RCON 3532 0 | 2.
3. Securities issued by states and political subdivisions in the U.S. in domestic offices ...... | RCON 3533 0 | 3.
4. Mortgage-backed securities (MBS) in domestic offices ........................................ | /////////////////////// |
a. Pass-through securities issued or guaranteed by FNMA, FHLMC, or GNMA ..................... | RCON 3534 0 | 4.a.
b. Other mortgage-backed securities issued or guaranteed by FNMA, FHLMC, or GNMA | /////////////////////// |
(include CMOs, REMICs, and stripped MBS) ................................................. | RCON 3535 0 | 4.b.
c. All other mortgage-backed securities ......................................................| RCON 3536 0 | 4.c.
5. Other debt securities in domestic offices ................................................... | RCON 3537 0 | 5.
6. Certificates of deposit in domestic offices ................................................. | RCON 3538 0 | 6.
7. Commercial paper in domestic offices ........................................................ | RCON 3539 0 | 7.
8. Bankers acceptances in domestic offices ..................................................... | RCON 3540 0 | 8.
9. Other trading assets in domestic offices .................................................... | RCON 3541 0 | 9.
10. Trading assets in foreign offices ........................................................... | RCFN 3542 0 | 10.
11. Revaluation gains on interest rate, foreign exchange rate, and other commodity and equity | /////////////////////// |
contracts: | /////////////////////// |
a. In domestic offices ...................................................................... | RCON 3543 484 | 11.a.
b. In foreign offices ....................................................................... | RCFN 3544 0 | 11.b.
12. Total trading assets (sum of items 1 through 11) (must equal Schedule RC, item 5) ........... | RCFD 3545 484 | 12.
|_________________________|

___________________________
| ///////// Bil Mil Thou |
LIABILITIES _________________________
13. Liability for short positions ............................................................... | RCFD 3546 0 | 13.
14. Revaluation losses on interest rate, foreign exchange rate, and other commodity and equity | /////////////////////// |
contracts ................................................................................... | RCFD 3547 460 | 14.
15. Total trading liabilities (sum of items 13 and 14) (must equal Schedule RC, item 15.b) ...... | RCFD 3548 460 | 15.
___________________________
</TABLE>

<PAGE> 38

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-9
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-E--Deposit Liabilities

Part I. Deposits in Domestic Offices
__________
| C425 | <-
______________________________________________________ ________
| | Nontransaction |
| Transaction Accounts | Accounts |
_________________________________________ ____________________
| (Column A) | (Column B) | (Column C) |
| Total transaction | Memo: Total | Total |
| accounts (including| demand deposits | nontransaction |
| total demand | (included in | accounts |
| deposits) | column A) | (including MMDAs) |
____________________ ____________________ ____________________
Dollar Amounts in Thousands | RCON Bil Mil Thou | RCON Bil Mil Thou | RCON Bil Mil Thou |
__________________________________________________________ ____________________ ____________________ ____________________
<S> <C> <C> <C> <C>
Deposits of: | ////////////////// | ////////////////// | ////////////////// |
1. Individuals, partnerships, and corporations .......... | 2201 1,870,879 | 2240 1,790,783 | 2346 5,557,638 | 1.
2. U.S. Government ...................................... | 2202 32,574 | 2280 32,277 | 2520 0 | 2.
3. States and political subdivisions in the U.S. ........ | 2203 150,578 | 2290 127,109 | 2530 106,071 | 3.
4. Commercial banks in the U.S. ......................... | 2206 202,546 | 2310 202,546 | 2550 100 | 4.
5. Other depository institutions in the U.S. ............ | 2207 174,699 | 2312 174,699 | 2349 500 | 5.
6. Banks in foreign countries ........................... | 2213 318 | 2320 318 | 2236 0 | 6.
7. Foreign governments and official institutions | ////////////////// | ////////////////// | ////////////////// |
(including foreign central banks) .................... | 2216 0 | 2300 0 | 2377 0 | 7.
8. Certified and official checks ........................ | 2330 38,836 | 2330 38,836 | ////////////////// | 8.
9. Total (sum of items 1 through 8) (sum of | ////////////////// | ////////////////// | ////////////////// |
columns A and C must equal Schedule RC, | ////////////////// | ////////////////// | ////////////////// |
item 13.a) ........................................... | 2215 2,470,430 | 2210 2,366,568 | 2385 5,664,309 | 9.
________________________________________________________________
</TABLE>
<TABLE>
<CAPTION>
______________________
Memoranda Dollar Amounts in Thousands | RCON Bil Mil Thou |
____________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Selected components of total deposits (i.e., sum of item 9, columns A and C): | ////////////////// |
a. Total Individual Retirement Accounts (IRAs) and Keogh Plan accounts ......................... | 6835 698,350 | M.1.a.
b. Total brokered deposits ..................................................................... | 2365 974,688 | M.1.b.
c. Fully insured brokered deposits (included in Memorandum item 1.b above): | ////////////////// |
(1) Issued in denominations of less than $100,000 ........................................... | 2343 60 | M.1.c.(1)
(2) Issued either in denominations of $100,000 or in denominations greater than $100,000 | ////////////////// |
and participated out by the broker in shares of $100,000 or less ........................ | 2344 974,628 | M.1.c.(2)
d. Maturity data for brokered deposits: | ////////////////// |
(1) Brokered deposits issued in denominations of less than $100,000 with a remaining | ////////////////// |
maturity of one year or less (included in Memorandum item 1.c.(1) above)................. | A243 40 | M.1.d.(1)
(2) Brokered deposits issued in denominations of $100,000 or more with a remaining | ////////////////// |
maturity of one year or less (included in memorandum item 1.b above)..................... | A244 348,862 | M.1.d.(2)
e. Preferred deposits (uninsured deposits of states and political subdivisions in the U.S. | ////////////////// |
reported in item 3 above which are secured or collateralized as required under state law) ... | 5590 250,556 | M.1.e.
2. Components of total nontransaction accounts (sum of Memoranda items 2.a through 2.d must | ////////////////// |
equal item 9, column C above): | ////////////////// |
a. Savings deposits: | ////////////////// |
(1) Money market deposit accounts (MMDAs) ................................................... | 6810 2,070,204 | M.2.a.(1)
(2) Other savings deposits (excludes MMDAs) ................................................. | 0352 607,255 | M.2.a.(2)
b. Total time deposits of less than $100,000 ................................................... | 6648 1,723,479 | M.2.b.
c. Time certificates of deposit of $100,000 or more ............................................ | 6645 1,263,371 | M.2.c.
d. Open-account time deposits of $100,000 or more .............................................. | 6646 0 | M.2.d.
3. All NOW accounts (included in column A above) .................................................. | 2398 103,862 | M.3.
4. Not applicable.
______________________
</TABLE>

<PAGE> 39

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-10
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
<CAPTION>
Schedule RC-E--Continued

Part I. Continued

Memoranda (continued)
_________________________________________________________________________________________________________________________________
</TABLE>
<TABLE>
<CAPTION>
______________________
Dollar Amounts in Thousands | RCON Bil Mil Thou |
___________________________________________________________________________________________________ ____________________
<S> <C> <C>
5. Maturity and repricing data for time deposits of less than $100,000 (sum of | ////////////////// |
Memorandum items 5.a.(1) through 5.b.(3) must equal Memorandum item 2.b above):(1) | ////////////////// |
a. Fixed rate time deposits of less than $100,000 with a remaining maturity of: | ////////////////// |
(1) Three months or less.................................................................... | A225 606,686 | M.5.a.(1)
(2) Over three months through 12 months..................................................... | A226 797,678 | M.5.a.(2)
(3) Over one year........................................................................... | A227 271,853 | M.5.a.(3)
b. Floating rate time deposits of less than $100,000 with a repricing frequency of: | ////////////////// |
(1) Quarterly or more frequently............................................................ | A228 47,262 | M.5.b.(1)
(2) Annually or more frequently, but less frequently than quarterly......................... | A229 0 | M.5.b.(2)
(3) Less frequently than annually........................................................... | A230 0 | M.5.b.(3)
c. Floating rate time deposits of less than $100,000 with a remaining maturity of | ////////////////// |
one year or less (included in Memorandum items 5.b.(1) through 5.b.(3) above)............... | A231 28,168 | M.5.c.
6. Maturity and repricing data for time deposits of $100,000 or more (i.e., time certificates | ////////////////// |
of deposits of $100,000 or more and open-account time deposits of $100,000 or more) | ////////////////// |
(sum of Memorandum items 6.a.(1) through 6.b.(4) must equal the sum of Memorandum | ////////////////// |
items 2.c and 2.d above):(1) | ////////////////// |
a. Fixed rate time deposits of $100,000 or more wiht a remaining maturity of: | ////////////////// |
(1) Three months or less ................................................................... | A232 270,543 | M.6.a.(1)
(2) Over three months through 12 months .................................................... | A233 297.457 | M.6.a.(2)
(3) Over one year through five years ....................................................... | A234 695,371 | M.6.a.(3)
(4) Over five years ........................................................................ | A235 0 | M.6.a.(4)
b. Floating rate time deposits of $100,000 or more with a repricing frequency of: | ////////////////// |
(1) Quarterly or more frequently ........................................................... | A236 0 | M.6.b.(1)
(2) Annually or more frequently, but less frequently than quarterly ........................ | A237 0 | M.6.b.(2)
(3) Every five years or more frequently, but less frequently than annually ................. | A238 0 | M.6.b.(3)
(4) Less frequently than every five years .................................................. | A239 0 | M.6.b.(4)
c. Floating rate time deposits of $100,000 or more with a remaining maturity of | ////////////////// |
one year or less (included in Memorandum items 6.b.(1) through 6.b.(4) above)............... | A240 0 | M.6.c.
______________________
<FN>
_____________
(1) Memorandum items 5 and 6 are not applicable to savings banks that must complete supplemental Schedule RC-J.
</FN>
</TABLE>

<PAGE> 40

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-11
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-E--Continued

Part II. Deposits in Foreign Offices (including Edge and
Agreement subsidiaries and IBFs)

______________________
Dollar Amounts in Thousands | RCFN Bil Mil Thou |
___________________________________________________________________________________________________ ____________________
<S> <C> <C>
Deposits of: | ////////////////// |
1. Individuals, partnerships, and corporations ................................................... | 2621 256,352 | 1.
2. U.S. banks (including IBFs and foreign branches of U.S. banks) ................................ | 2623 0 | 2.
3. Foreign banks (including U.S. branches and agencies of foreign banks, including their IBFs).... | 2625 5,000 | 3.
4. Foreign governments and official institutions (including foreign central banks) ............... | 2650 0 | 4.
5. Certified and official checks ................................................................. | 2330 0 | 5.
6. All other deposits ............................................................................ | 2668 0 | 6.
7. Total (sum of items 1 through 6) (must equal Schedule RC, item 13.b) .......................... | 2200 261,352 | 7.

Memorandum
Dollar Amounts in Thousands |RCFN Bil Mil Thou |
1. Time deposits with a remaining maturity of one year or less (included in Part II, item 7 above) |A245 261,352 | M.1.
______________________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-F--Other Assets
__________
| C430 | <-
_________________ ________
Dollar Amounts in Thousands | ////////// Bil Mil Thou |
__________________________________________________________________________________________________ _________________________
<S> <C> <C>
1. Income earned, not collected on loans ........................................................ | RCFD 2164 51,988 | 1.
2. Net deferred tax assets(1) ................................................................... | RCFD 2148 166,839 | 2.
3. Excess residential mortgage servicing fees receivable ........................................ | RCFD 5371 17,484 | 3.
4. Other (itemize and describe amounts that exceed 25% of this item)............................. | RCFD 2168 379,174 | 4.
_____________ ___________________________
a. | TEXT 3549 |____________________________________________________| RCFD 3549 | | /////////////////////// | 4.a.
___________
b. | TEXT 3550 |____________________________________________________| RCFD 3550 | | /////////////////////// | 4.b.
___________
c. | TEXT 3551 |____________________________________________________| RCFD 3551 | | /////////////////////// | 4.c.
_____________
___________________________
5. Total (sum of items 1 through 4) (must equal Schedule RC, item 11) ........................... | RCFD 2160 615,485 | 5.
___________________________
<CAPTION>
Memorandum ___________________________
Dollar Amounts in Thousands | ////////// Bil Mil Thou |
__________________________________________________________________________________________________ _________________________
<S> <C> <C>
1. Deferred tax assets disallowed for regulatory capital purposes ............................... | RCFD 5610 0 | M.1.
___________________________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-G--Other Liabilities
__________
| C435 | <-
_________________ ________
Dollar Amounts in Thousands | ////////// Bil Mil Thou |
__________________________________________________________________________________________________ _________________________
<S> <C> <C>
1. a. Interest accrued and unpaid on deposits in domestic offices(2) ............................ | RCON 3645 24,670 | 1.a.
b. Other expenses accrued and unpaid (includes accrued income taxes payable) ................. | RCFD 3646 305,857 | 1.b.
2. Net deferred tax liabilities(1) .............................................................. | RCFD 3049 0 | 2.
3. Minority interest in consolidated subsidiaries ............................................... | RCFD 3000 0 | 3.
4. Other (itemize and describe amounts that exceed 25% of this item)............................. | RCFD 2938 32,552 | 4.
_____________ ___________________________
a. | TEXT 3552 |____________________________________________________| RCFD 3552 | | /////////////////////// | 4.a.
___________
b. | TEXT 3553 |____________________________________________________| RCFD 3553 | | /////////////////////// | 4.b.
___________
c. | TEXT 3554 |____________________________________________________| RCFD 3554 | | /////////////////////// | 4.c.
_____________
___________________________
5. Total (sum of items 1 through 4) (must equal Schedule RC, item 20) ........................... | RCFD 2930 363,079 | 5.
___________________________
<FN>
____________
(1) See discussion of deferred income taxes in Glossary entry on "income taxes."
(2) For savings banks, include "dividends" accrued and unpaid on deposits.
</FN>
</TABLE>

<PAGE> 41

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-12
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-H--Selected Balance Sheet Items for Domestic Offices
__________
| C440 | <-
____________ ________
| Domestic Offices |
____________________
Dollar Amounts in Thousands | RCON Bil Mil Thou |
_____________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Customers' liability to this bank on acceptances outstanding .................................... | 2155 6,513 | 1.
2. Bank's liability on acceptances executed and outstanding ........................................ | 2920 6,513 | 2.
3. Federal funds sold and securities purchased under agreements to resell .......................... | 1350 0 | 3.
4. Federal funds purchased and securities sold under agreements to repurchase ...................... | 2800 2,065,157 | 4.
5. Other borrowed money ............................................................................ | 3190 1,098,032 | 5.
EITHER | ////////////////// |
6. Net due from own foreign offices, Edge and Agreement subsidiaries, and IBFs ..................... | 2163 N/A | 6.
OR | ////////////////// |
7. Net due to own foreign offices, Edge and Agreement subsidiaries, and IBFs ....................... | 2941 261,771 | 7.
8. Total assets (excludes net due from foreign offices, Edge and Agreement subsidiaries, and IBFs) . | 2192 13,927,565 | 8.
9. Total liabilities (excludes net due to foreign offices, Edge and Agreement subsidiaries, and IBFs)| 3129 12,286,580 | 9.
______________________

</TABLE>
<TABLE>
<CAPTION>
Items 10-17 include held-to-maturity and available-for-sale securities in domestic offices. ______________________
| RCON Bil Mil Thou |
____________________
<S> <C> <C>
10. U.S. Treasury securities ....................................................................... | 1779 829,753 | 10.
11. U.S. Government agency and corporation obligations (exclude mortgage-backed | ////////////////// |
securities) .................................................................................... | 1785 0 | 11.
12. Securities issued by states and political subdivisions in the U.S. ............................. | 1786 42 | 12.
13. Mortgage-backed securities (MBS): | ////////////////// |
a. Pass-through securities: | ////////////////// |
(1) Issued or guaranteed by FNMA, FHLMC, or GNMA ............................................ | 1787 850,605 | 13.a.(1)
(2) Other pass-through securities ........................................................... | 1869 0 | 13.a.(2)
b. Other mortgage-backed securities (include CMOs, REMICs, and stripped MBS): | ////////////////// |
(1) Issued or guaranteed by FNMA, FHLMC, or GNMA ............................................ | 1877 0 | 13.b.(1)
(2) All other mortgage-backed securities..................................................... | 2253 0 | 13.b.(2)
14. Other domestic debt securities ................................................................. | 3159 475 | 14.
15. Foreign debt securities ........................................................................ | 3160 2,900 | 15.
16. Equity securities: | ////////////////// |
a. Investments in mutual funds ................................................................. | 3161 9,427 | 16.a.
b. Other equity securities with readily determinable fair values ............................... | 3162 0 | 16.b.
c. All other equity securities ................................................................. | 3169 116,420 | 16.c.
17. Total held-to-maturity and available-for-sale securities (sum of items 10 through 16) .......... | 3170 1,809,622 | 17.
______________________

</TABLE>
<TABLE>
<CAPTION>
Memorandum (to be completed only by banks with IBFs and other "foreign" offices)

______________________
Dollar Amounts in Thousands | RCON Bil Mil Thou |
_____________________________________________________________________________________________________ ____________________
<S> <C> <C>
EITHER | ////////////////// |
1. Net due from the IBF of the domestic offices of the reporting bank .............................. | 3051 N/A | M.1.
OR | ////////////////// |
2. Net due to the IBF of the domestic offices of the reporting bank ................................ | 3059 N/A | M.2.
______________________
</TABLE>

<PAGE> 42

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-13
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-I--Selected Assets and Liabilities of IBFs

To be completed only by banks with IBFs and other "foreign" offices. __________
| C445 | <-
____________ ________
Dollar Amounts in Thousands | RCFN Bil Mil Thou |
_____________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Total IBF assets of the consolidated bank (component of Schedule RC, item 12) .................. | 2133 N/A | 1.
2. Total IBF loans and lease financing receivables (component of Schedule RC-C, part I, item 12, | ////////////////// |
column A) ...................................................................................... | 2076 N/A | 2.
3. IBF commercial and industrial loans (component of Schedule RC-C, part I, item 4, column A) ..... | 2077 N/A | 3.
4. Total IBF liabilities (component of Schedule RC, item 21) ...................................... | 2898 N/A | 4.
5. IBF deposit liabilities due to banks, including other IBFs (component of Schedule RC-E, | ////////////////// |
part II, items 2 and 3) ........................................................................ | 2379 N/A | 5.
6. Other IBF deposit liabilities (component of Schedule RC-E, part II, items 1, 4, 5, and 6) ...... | 2381 N/A | 6.
______________________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-K--Quarterly Averages (1)
__________
| C455 | <-
_________________ ________
Dollar Amounts in Thousands | ///////// Bil Mil Thou |
_______________________________________________________________________________________________ _________________________
<S> <C> <C>
ASSETS | /////////////////////// |
1. Interest-bearing balances due from depository institutions ............................... | RCFD 3381 1,841 | 1.
2. U.S. Treasury securities and U.S. Government agency and corporation obligations(2) ....... | RCFD 3382 2,327,287 | 2.
3. Securities issued by states and political subdivisions in the U.S.(2) .................... | RCFD 3383 42 | 3.
4. a. Other debt securities(2) .............................................................. | RCFD 3647 537,639 | 4.a.
b. Equity securities(3) (includes investments in mutual funds and Federal Reserve stock) . | RCFD 3648 124,253 | 4.b.
5. Federal funds sold and securities purchased under agreements to resell in domestic offices | /////////////////////// |
of the bank and of its Edge and Agreement subsidiaries, and in IBFs ...................... | RCFD 3365 24,049 | 5.
6. Loans: | /////////////////////// |
a. Loans in domestic offices: | /////////////////////// |
(1) Total loans ....................................................................... | RCON 3360 11,036,031 | 6.a.(1)
(2) Loans secured by real estate ...................................................... | RCON 3385 3,924,553 | 6.a.(2)
(3) Loans to finance agricultural production and other loans to farmers ............... | RCON 3386 1,787 | 6.a.(3)
(4) Commercial and industrial loans ................................................... | RCON 3387 5,456,987 | 6.a.(4)
(5) Loans to individuals for household, family, and other personal expenditures ....... | RCON 3388 620,136 | 6.a.(5)
| /////////////////////// |
b. Total loans in foreign offices, Edge and Agreement subsidiaries, and IBFs ............. | RCFN 3360 0 | 6.b.
7. Trading assets ........................................................................... | RCFD 3401 658 | 7.
8. Lease financing receivables (net of unearned income) ..................................... | RCFD 3484 9,155 | 8.
9. Total assets (4) ......................................................................... | RCFD 3368 15,745,746 | 9.
LIABILITIES | /////////////////////// |
10. Interest-bearing transaction accounts in domestic offices (NOW accounts, ATS accounts, | /////////////////////// |
and telephone and preauthorized transfer accounts) (exclude demand deposits) ............. | RCON 3485 145,491 | 10.
11. Nontransaction accounts in domestic offices: | /////////////////////// |
a. Money market deposit accounts (MMDAs) ................................................. | RCON 3486 1,367,351 | 11.a.
b. Other savings deposits ................................................................ | RCON 3487 1,715,719 | 11.b.
c. Time certificates of deposit of $100,000 or more ...................................... | RCON 3345 1,290,422 | 11.c.
d. All other time deposits ............................................................... | RCON 3469 2,270,162 | 11.d.
12. Interest-bearing deposits in foreign offices, Edge and Agreement subsidiaries, and IBFs .. | RCFN 3404 357,799 | 12.
13. Federal funds purchased and securities sold under agreements to repurchase in domestic | /////////////////////// |
offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs .............. | RCFD 3353 2,634,782 | 13.
14. Other borrowed money ..................................................................... | RCFD 3355 1,058,218 | 14.
___________________________
<FN>
_____________
(1) For all items, banks have the option of reporting either (1) an average of daily figures for the quarter, or
(2) an average of weekly figures (i.e., the Wednesday of each week of the quarter).
(2) Quarterly averages for all debt securities should be based on amortized cost.
(3) Quarterly averages for all equity securities should be based on historical cost.
(4) The quarterly average for total assets should reflect all debt securities (not held for trading) at amortized
cost, equity securities with readily determinable fair values at the lower of cost or fair value, and equity
securities without readily determinable fair values at historical cost.
</FN>
</TABLE>

<PAGE> 43

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-14
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-L--Off-Balance Sheet Items

Please read carefully the instructions for the preparation of Schedule RC-L. Some of the amounts
reported in Schedule RC-L are regarded as volume indicators and not necessarily as measures of risk. __________
| C460 | <-
____________ ________
Dollar Amounts in Thousands | RCFD Bil Mil Thou |
____________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Unused commitments: | ////////////////// |
a. Revolving, open-end lines secured by 1-4 family residential properties, e.g., home | ////////////////// |
equity lines ............................................................................... | 3814 404,731 | 1.a.
b. Credit card lines .......................................................................... | 3815 0 | 1.b.
c. Commercial real estate, construction, and land development: | ////////////////// |
(1) Commitments to fund loans secured by real estate ....................................... | 3816 112,242 | 1.c.(1)
(2) Commitments to fund loans not secured by real estate ................................... | 6550 4,610 | 1.c.(2)
d. Securities underwriting .................................................................... | 3817 0 | 1.d.
e. Other unused commitments ................................................................... | 3818 5,996,651 | 1.e.
2. Financial standby letters of credit and foreign office guarantees ............................. | 3819 1,038,270 | 2.
___________________________
a. Amount of financial standby letters of credit conveyed to others | RCFD 3820 | 1,075 | ////////////////// | 2.a.
___________________________
3. Performance standby letters of credit and foreign office guarantees ........................... | 3821 48,181 | 3.
a. Amount of performance standby letters of credit conveyed to | ////////////////// |
___________________________
others .......................................................... | RCFD 3822 | 0 | ////////////////// | 3.a.
___________________________
4. Commercial and similar letters of credit ...................................................... | 3411 129,940 | 4.
5. Participations in acceptances (as described in the instructions) conveyed to others by | ////////////////// |
the reporting bank ............................................................................ | 3428 0 | 5.
6. Participations in acceptances (as described in the instructions) acquired by the reporting | ////////////////// |
(nonaccepting) bank ........................................................................... | 3429 0 | 6.
7. Securities borrowed ........................................................................... | 3432 0 | 7.
8. Securities lent (including customers' securities lent where the customer is indemnified | ////////////////// |
against loss by the reporting bank) ........................................................... | 3433 0 | 8.
9. Loans transferred (i.e., sold or swapped) with recourse that have been treated as sold for | ////////////////// |
Call Report purposes: | ////////////////// |
a. FNMA and FHLMC residential mortgage loan pools: | ////////////////// |
(1) Outstanding principal balance of mortgages transferred as of the report date ........... | 3650 60,259 | 9.a.(1)
(2) Amount of recourse exposure on these mortgages as of the report date ................... | 3651 54,182 | 9.a.(2)
b. Private (nongovernment-issued or -guaranteed) residential mortgage loan pools: | ////////////////// |
(1) Outstanding principal balance of mortgages transferred as of the report date ........... | 3652 0 | 9.b.(1)
(2) Amount of recourse exposure on these mortgages as of the report date ................... | 3653 0 | 9.b.(2)
c. Farmer Mac agricultural mortgage loan pools: | ////////////////// |
(1) Outstanding principal balance of mortgages transferred as of the report date ........... | 3654 0 | 9.c.(1)
(2) Amount of recourse exposure on these mortgages as of the report date ................... | 3655 0 | 9.c.(2)
d. Small business obligations transferred with recourse under Section 208 of the | ////////////////// |
Riegle Community Development and Regulatory Improvement Act of 1994: | ////////////////// |
(1) Outstanding principal balance of small business obligations transferred | ////////////////// |
as of the report date................................................................... | A249 0 | 9.d.(1)
(2) Amount of retained recourse on these obligations as of the report date.................. | A250 0 | 9.d.(2)
10. When-issued securities: | ////////////////// |
a. Gross commitments to purchase .............................................................. | 3434 0 | 10.a.
b. Gross commitments to sell .................................................................. | 3435 0 | 10.b.
11. Spot foreign exchange contracts ............................................................... | 8765 0 | 11.
12. All other off-balance sheet liabilities (exclude off-balance sheet derivatives ) (itemize and | ////////////////// |
describe each component of this item over 25% of Schedule RC, item 28, "Total equity capital") | 3430 0 | 12.
a. | TEXT 3555 |______________________________________________________| RCFD 3555 | | ////////////////// | 12.a.

b. | TEXT 3556 |______________________________________________________| RCFD 3556 | | ////////////////// | 12.b.
___________
c. | TEXT 3557 |______________________________________________________| RCFD 3557 | | ////////////////// | 12.c.
_____________
d. | TEXT 3558 |______________________________________________________| RCFD 3558 | | ////////////////// | 12.d.
_____________

Dollar Amounts in Thousands RCFD Bil Mil Thou
13. All other off-balance sheet assets (exclude off-balance sheet derivatives) (itemize and | ////////////////// |
describe each component of this item over 25% of Schedule RC,item 28,"Total equity capital") | 5591 0 | 13.

_____________ __________________________
a. | TEXT 5592 |______________________________________________________| RCFD 5592 | | ////////////////// | 13.a.
___________
b. | TEXT 5593 |______________________________________________________| RCFD 5593 | | ////////////////// | 13.b.
___________
c. | TEXT 5594 |______________________________________________________| RCFD 5594 | | ////////////////// | 13.c.
_____________
d. | TEXT 5595 |______________________________________________________| RCFD 5595 | | ////////////////// | 13.d.
_____________
________________________________________________

</TABLE>

<PAGE> 44

<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-15
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|

Schedule RC-L -- Continued

_____________
| C461 | <-
_________________________________________ ____________________________|___________|
| (Column A) | (Column B) | (Column C) | (Column D) |
| Interest Rate | Foreign Exchange | Equity Derivative | Commodity and other|
| Contracts | Contracts | Contracts | Contracts |
|___________________|____________________|____________________|____________________|
Dollar Amounts in Thousands |Tril Bil Mil Thou | Tril Bil Mil Thou | Tril Bil Mil Thou | Tril Bil Mil Thou |
______________________________________________________________________________________________________________________|
<S> <C> <C> <C> <C> <C>
| Off-balance Sheet Derivatives | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
| Position Indicators | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
___________________________________| ///////////////// | ////////////////// | ////////////////// | ////////////////// |
14. Gross amounts (e.g., notional | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
amounts) (for each column, sum of | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
items 14.a through 14.e must equal| ///////////////// | ////////////////// | ////////////////// | ////////////////// |
sum of items 15, 16.a, and 16.b): |___________________|____________________|___________________ |____________________|
a. Future contracts .............. | 0 | 0 | 0 | 0 | 14.a.
| RCFD 8693 | RCFD 8694 | RCFD 8695 | RCFD 8696 |
b. Forward contracts ............. | 0 | 0 | 0 | 0 | 14.b.
| RCFD 8697 | RCFD 8698 | RCFD 8699 | RCFD 8700 |
c. Exchange-traded option contracts| ///////////////// | ////////////////// | ////////////////// | ////////////////// |
(1) Written options .......... | 0 | 0 | 0 | 0 | 14.c.(1)
| RCFD 8701 | RCFD 8702 | RCFD 8703 | RCFD 8704 |
(2) Purchased options ........ | 0 | 0 | 0 | 0 | 14.c.(2)
| RCFD 8705 | RCFD 8706 | RCFD 8707 | RCFD 8708 |
d. Over-the-counter option contracts: | //////////////////| ///////////////// | ///////////////// | //////////////// |
(1) Written options .......... | 68,500 | 0 | 0 | 0 | 14.d.(1)
| RCFD 8709 | RCFD 8710 | RCFD 8711 | RCFD 8712 |
(2) Purchased options ........ | 368,500 | 0 | 0 | 0 | 14.d.(2)
| RCFD 8713 | RCFD 8714 | RCFD 8715 | RCFD 8716 |
e. Swaps ............................ | 4,553,328 | 0 | 0 | 0 | 14.e.
| RCFD 3450 | RCFD 3826 | RCFD 8719 | RCFD 8720 |
15. Total gross notional amount of | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
derivative contracts held for | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
trading ......................... | 160,000 | 0 | 0 | 0 | 15.
| RCFD A126 | RFD A127 | RCFD 8723 | RCFD 8724 |
16. Total gross notional amount of | ///////////////// | //////////////// | ///////////////// | ////////////////// |
derivative contracts held for | ///////////////// | ///////////////// | ///////////////// | ////////////////// |
purposes other than trading: | ///////////////// | ///////////////// | ///////////////// | ////////////////// |
a. Contracts marked to market ... | 0 | 0 | 0 | 0 | 16.a.
| RCFD 8725 | RCFD 8726 | RCF 8727 | RCFD 8728 |
b. Contracts not marked to market | 4,830,328 | 0 | 0 | 0 | 16.b.
| RCFD 8729 | RCFD 8730 | RFD 8731 | RCFD 8732 |
___________________________________________________________________________________|
</TABLE>

<PAGE> 45
25

<TABLE>
<CAPTION>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-15
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
</TABLE>

Schedule RC-L -- Continued

<TABLE>
<CAPTION>
_________________________________________ _________________________________________
| (Column A) | (Column B) | (Column C) | (Column D) |
| Interest Rate | Foreign Exchange | Equity Derivative | Commodity and other|
| Contracts | Contracts | Contracts | Contracts |
|___________________|____________________|____________________|____________________|
Dollar Amounts in thousands |RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou |
______________________________________________________________________________________________________________________|
<S> <C> <C> <C> <C> <C>
| Off-balance Sheet Derivatives | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
| Position Indicators | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
___________________________________| ///////////////// | ////////////////// | ////////////////// | ////////////////// |
| ///////////////// | ////////////////// | ////////////////// | ////////////////// |
17. Gross fair values of | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
derivative contracts: | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
a. Contracts held for | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
trading: | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
(1) Gross positive | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
fair value ................... | 8733 484 | 8734 0 | 8735 0 | 8736 0 | 17.a.(1)
(2) Gross negative | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
fair value ................... | 8737 460 | 8738 0 | 8739 0 | 8740 0 | 17.a.(2)
b. Contracts held for | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
purposes other than | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
trading that are marked | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
to market: | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
(1) Gross positive | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
fair value ................... | 8741 0 | 8742 0 | 8743 0 | 8744 0 | 17.b.(1)
(2) Gross negative | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
fair value ................... | 8745 0 | 8746 0 | 8747 0 | 8748 0 | 17.b.(2)
c. Contracts held for | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
purposes other than | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
trading that are not | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
marked to market: | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
(1) Gross positive | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
fair value .................. | 8749 5,594 | 8750 0 | 8751 0 | 8752 0 | 17.c.(1)
(2) Gross negative | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
fair value ................... | 8753 44,514 | 8754 0 | 8755 0 | 8756 0 | 17.c.(2)
|__________________________________________________________________________________|
</TABLE>

<TABLE>
<CAPTION>
______________________
Memoranda Dollar Amounts in Thousands | RCFD Bil Mil Thou |
_________________________________________________________________________________________________________________________
<S> <C> <C>
1. -2. Not applicable | ////////////////// |
3. Unused commitments with an original maturity exceeding one year that are reported in | ////////////////// |
Schedule RC-L, items 1.a through 1.e, above (report only the unused portions of commitments | ////////////////// |
that are fee paid or otherwise legally binding) ................................................ | 3833 4,493,867 | M.3.
a. Participations in commitments with an original maturity | ////////////////// |
exceeding one year conveyed to others ................................|RCFD 3834 | 93,830 | ////////////////// | M.3.a.
________________________
4. To be completed only by banks with $1 billion or more in total assets: | ////////////////// |
Standby letters of credit and foreign office guarantees (both financial and performance) issued | ////////////////// |
to non-U.S. addressees (domicile) included in Schedule RC-L, items 2 and 3, above .............. | 3377 317,126 | M.4.
5. Installment loans to individuals for household, family, and other personal expenditures that | ////////////////// |
have been securitized and sold without recourse (with servicing retained), amounts outstanding | ////////////////// |
by type of loan: | ////////////////// |
a. Loans to purchase private passenger automobiles (to be completed for the | ////////////////// |
September report only)....................................................................... | 2741 N/A | M.5.a.
b. Credit cards and related plans (TO BE COMPLETED QUARTERLY)................................... | 2742 0 | M.5.b.
c. All other consumer installment credit (including mobile home loans)(to be completed for the | ////////////////// |
September report only........................................................................ | 2743 N/A | M.5.c
</TABLE>
<PAGE> 46

<TABLE>
<CAPTION>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-17
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
</TABLE>

<TABLE>
<CAPTION>
_____________
| C465 |
_________|___________|
Schedule RC-M--Memoranda | |
Dollar Amounts in Thousands | RCFD Bil Mil Thou |
______________________________________________________________________________________________________|____________________|
<S> <C> <C>
1. Extensions of credit by the reporting bank to its executive officers, directors, principal | ////////////////// |
shareholders, and their related interests as of the report date: | ////////////////// |
a. Aggregate amount of all extensions of credit to all executive officers, directors, principal | ////////////////// |
shareholders and their related interests ..................................................... | 6164 159,583 | 1.a.
b. Number of executive officers, directors, and principal shareholders to whom the amount of all | ////////////////// |
extensions of credit by the reporting bank (including extensions of credit to | ////////////////// |
related interests) equals or exceeds the lesser of $500,000 or 5 percent Number | ////////////////// |
___________________________| ////////////////// |
of total capital as defined for this purpose in agency regulations. | RCFD 6165 | 7 | ////////////////// |
___________________________| ////////////////// | 1.b.
2. Federal funds sold and securities purchased under agreements to resell with U.S. branches | ////////////////// |
and agencies of foreign banks(1) (included in Schedule RC, items 3.a and 3.b) .................... | 3405 0 | 2.
3. Not applicable. | ////////////////// |
4. Outstanding principal balance of 1-4 family residential mortgage loans serviced for others | ////////////////// |
(include both retained servicing and purchased servicing): | ////////////////// |
a. Mortgages serviced under a GNMA contract ...................................................... | 5500 20,866 | 4.a.
b. Mortgages serviced under a FHLMC contract: | ////////////////// |
(1) Serviced with recourse to servicer ........................................................ | 5501 11,305 | 4.b.(1)
(2) Serviced without recourse to servicer ..................................................... | 5502 1,163,045 | 4.b.(2)
c. Mortgages serviced under a FNMA contract: | ////////////////// |
(1) Serviced under a regular option contract .................................................. | 5503 48,954 | 4.c.(1)
(2) Serviced under a special option contract .................................................. | 5504 2,112,518 | 4.c.(2)
d. Mortgages serviced under other servicing contracts ............................................ | 5505 3,306,908 | 4.d.
5. To be completed only by banks with $1 billion or more in total assets: | ////////////////// |
Customers' liability to this bank on acceptances outstanding (sum of items 5.a and 5.b must | ////////////////// |
equal Schedule RC, item 9): | ////////////////// |
a. U.S. addressees (domicile) .................................................................... | 2103 6,513 | 5.a.
b. Non-U.S. addressees (domicile) ................................................................ | 2104 0 | 5.b.
6. Intangible assets: | ////////////////// |
a. Mortgage servicing rights ..................................................................... | 3164 28,816 | 6.a.
b. Other identifiable intangible assets: | ////////////////// |
(1) Purchased credit card relationships ....................................................... | 5506 0 | 6.b.(1)
(2) All other identifiable intangible assets .................................................. | 5507 0 | 6.b.(2)
c. Goodwill ...................................................................................... | 3163 255,078 | 6.c.
d. Total (sum of items 6.a through 6.c) (must equal Schedule RC, item 10) ........................ | 2143 283,894 | 6.d.
e. Amount of intangible assets (included in item 6.b.(2) above) that have been grandfathered or | ////////////////// |
are otherwise qualifying for regulatory capital purposes ...................................... | 6442 0 | 6.e.
7. Mandatory convertible debt, net of common or perpetual preferred stock dedicated to | ////////////////// |
redeem the debt ...................................................................................| 3295 0 | 7.
______________________
<FN>
- ------------
(1) Do not report federal funds sold and securities purchased under agreements to resell with other
commercial banks in the U.S. in this item.
</FN>
</TABLE>
27

<PAGE> 47

<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATINAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-18
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|

Schedule RC-M--Continued ________________________
Dollar Amounts in Thousands | Bil Mil Thou|
_____________________________________________________________________________________________ |_______________________|
<S> <C> <C>
8. a. Other real estate owned: | /////////////////////// |
(1) Direct and indirect investments in real estate ventures ......................... | RCFD 5372 0 | 8.a.(1)
(2) All other real estate owned: | /////////////////////// |
(a) Construction and land development in domestic offices ....................... | RCON 5508 74 | 8.a.(2)(a)
(b) Farmland in domestic offices ................................................ | RCON 5509 0 | 8.a.(2)(b)
(c) 1-4 family residential properties in domestic offices ....................... | RCON 5510 596 | 8.a.(2)(c)
(d) Multifamily (5 or more) residential properties in domestic offices .......... | RCON 5511 192 | 8.a.(2)(d)
(e) Nonfarm nonresidential properties in domestic offices ....................... | RCON 5512 9 | 8.a.(2)(e)
(f) In foreign offices .......................................................... | RCFN 5513 0 | 8.a.(2)(f)
(3) Total (sum of items 8.a.(1) and 8.a.(2)) (must equal Schedule RC, item 7) ....... | RCFD 2150 871 | 8.a.(3)
b. Investments in unconsolidated subsidiaries and associated companies: | /////////////////////// |
(1) Direct and indirect investments in real estate ventures ......................... | RCFD 5374 0 | 8.b.(1)
(2) All other investments in unconsolidated subsidiaries and associated companies ... | RCFD 5375 0 | 8.b.(2)
(3) Total (sum of items 8.b.(1) and 8.b.(2)) (must equal Schedule RC, item 8) ....... | RCFD 2130 0 | 8.b.(3)
c. Total assets of unconsolidated subsidiaries and associated companies ................ | RCFD 5376 0 | 8.c.
9. Noncumulative perpetual preferred stock and related surplus included in Schedule RC, | /////////////////////// |
item 23, "Perpetual preferred stock and related surplus" ............................... | RCFD 3778 0 | 9.
10. Mutual fund and annuity sales in domestic offices during the quarter (include | /////////////////////// |
proprietary, private label, and third party products): | /////////////////////// |
a. Money market funds .................................................................. | RCON 6441 0 | 10.a.
b. Equity securities funds ............................................................. | RCON 8427 0 | 10.b.
c. Debt securities funds ............................................................... | RCON 8428 0 | 10.c.
d. Other mutual funds .................................................................. | RCON 8429 0 | 10.d.
e. Annuities ........................................................................... | RCON 8430 0 | 10.e.
f. Sales of proprietary mutual funds and annuities (included in itmes 10.a through | /////////////////////// |
10.e. above) ........................................................................... | RCON 8784 0 | 10.f.
_________________________
</TABLE>
<TABLE>
<CAPTION>
_________________________________________________________________________________________________________________________________
| |
______________________
|Memorandum Dollar Amounts in Thousands | RCFD Bil Mil Thou | |
_________________________________________________________________________________________________ ____________________
<S> <C> <C>
|1. Interbank holdings of capital instruments (to be completed for the December report only): | ////////////////// | |
| a. Reciprocal holdings of banking organizations' capital instruments ........................ | 3836 N/A | M.1.a. |
| b. Nonreciprocal holdings of banking organizations' capital instruments ..................... | 3837 N/A | M.1.b. |
______________________
| |
_________________________________________________________________________________________________________________________________
</TABLE>

<PAGE> 48

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-19
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-N--Past Due and Nonaccrual Loans, Leases,
and Other Assets

The FFIEC regards the information reported in __________
all of Memorandum item 1, in items 1 through 10, | C470 | <-
column A, and in Memorandum items 2 through 4, ______________________________________________________ ________
column A, as confidential. | (Column A) | (Column B) | (Column C) |
| Past due | Past due 90 | Nonaccrual |
| 30 through 89 | days or more | |
| days and still | and still | |
| accruing | accruing | |
____________________ ____________________ ____________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou |
______________________________________________________ ____________________ ____________________ ____________________
<S> <C> <C> <C> <C>
1. Loans secured by real estate: | ////////////////// | ////////////////// | ////////////////// |
a. To U.S. addressees (domicile) ................ | 1245 | 1246 18,232 | 1247 53,840 | 1.a.
b. To non-U.S. addressees (domicile) ............ | 1248 | 1249 0 | 1250 0 | 1.b.
2. Loans to depository institutions and | ////////////////// | ////////////////// | ////////////////// |
acceptances of other banks: | ////////////////// | ////////////////// | ////////////////// |
a. To U.S. banks and other U.S. depository | ////////////////// | ////////////////// | ////////////////// |
institutions ................................. | 5377 | 5378 0 | 5379 0 | 2.a.
b. To foreign banks ............................. | 5380 | 5381 0 | 5382 0 | 2.b.
3. Loans to finance agricultural production and | ////////////////// | ////////////////// | ////////////////// |
other loans to farmers .......................... | 1594 | 1597 0 | 1583 100 | 3.
4. Commercial and industrial loans: | ////////////////// | ////////////////// | ////////////////// |
a. To U.S. addressees (domicile) ................ | 1251 | 1252 1,756 | 1253 31,162 | 4.a.
b. To non-U.S. addressees (domicile) ............ | 1254 | 1255 0 | 1256 0 | 4.b.
5. Loans to individuals for household, family, and | ////////////////// | ////////////////// | ////////////////// |
other personal expenditures: | ////////////////// | ////////////////// | ///////////////// |
a. Credit cards and related plans ............... | 5383 | 5384 183 | 5385 184 | 5.a.
b. Other (includes single payment, installment, | ////////////////// | ////////////////// | ////////////////// |
and all student loans) ....................... | 5386 | 5387 1,542 | 5388 2,138 | 5.b.
6. Loans to foreign governments and official | ////////////////// | ////////////////// | ////////////////// |
institutions .................................... | 5389 | 5390 0 | 5391 0 | 6.
7. All other loans ................................. | 5459 | 5460 253 | 5461 72 | 7.
8. Lease financing receivables: | ////////////////// | ////////////////// | ////////////////// |
a. Of U.S. addressees (domicile) ................ | 1257 | 1258 0 | 1259 0 | 8.a.
b. Of non-U.S. addressees (domicile) ............ | 1271 | 1272 0 | 1791 0 | 8.b.
9. Debt securities and other assets (exclude other | ////////////////// | ////////////////// | ////////////////// |
real estate owned and other repossessed assets) . | 3505 | 3506 0 | 3507 0 | 9.
________________________________________________________________
</TABLE>
<TABLE>
<CAPTION>
====================================================================================================================================

Amounts reported in items 1 through 8 above include guaranteed and unguaranteed portions of past due and nonaccrual loans and
leases. Report in item 10 below certain guaranteed loans and leases that have already been included in the amounts reported in
items 1 through 8.

________________________________________________________________
| RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou |
____________________ ____________________ ____________________
<S> <C> <C> <C> <C>
10. Loans and leases reported in items 1 | | | |
through 8 above which are wholly or partially | ////////////////// | ////////////////// | ////////////////// |
guaranteed by the U.S. Government ............... | 5612 | 5613 324 | 5614 317 | 10.
a. Guaranteed portion of loans and leases | ////////////////// | ////////////////// | ////////////////// |
included in item 10 above .................... | 5615 | 5616 256 | 5617 263 | 10.a.
________________________________________________________________
</TABLE>

<PAGE> 49

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-20
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-N--Continued
__________
| C473 | <-
______________________________________________________ ________
| (Column A) | (Column B) | (Column C) |
| Past due | Past due 90 | Nonaccrual |
| 30 through 89 | days or more | |
| days and still | and still | |
Memoranda | accruing | accruing | |
____________________ ____________________ ____________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou |
______________________________________________________ ____________________ ____________________ ____________________
<S> <C> <C> <C> <C>
1. Restructured loans and leases included in | ////////////////// | /////////////////// | ///////////////// |
Schedule RC-N, items 1 through 8, above (and not | ////////////////// | /////////////////// | ///////////////// |
reported in Schedule RC-C, part I, Memorandum | ////////////////// | /////////////////// | ///////////////// |
item 2) ......................................... | 1658 | | | M.1.
2. Loans to finance commercial real estate, | ////////////////// | /////////////////// | ///////////////// |
construction, and land development activities | ////////////////// | /////////////////// | ///////////////// |
(not secured by real estate) included in | ////////////////// | /////////////////// | ///////////////// |
Schedule RC-N, items 4 and 7, above ............. | 6558 | 6559 593 | 6560 26 | M.2.
|____________________|____________________ |___________________
3. Loans secured by real estate in domestic offices | RCON Bil Mil Thou | RCON Bil Mil Thou | RCON Bil Mil Thou|
|___________________ |____________________ ____________________
(included in Schedule RC-N, item 1, above): | ////////////////// | ////////////////// | ////////////////// |
a. Construction and land development ............ | 2759 | 2769 0 | 3492 1,108 | M.3.a.
b. Secured by farmland .......................... | 3493 | 3494 0 | 3495 0 | M.3.b.
c. Secured by 1-4 family residential properties: | ////////////////// | ////////////////// | ////////////////// |
(1) Revolving, open-end loans secured by | ////////////////// | ////////////////// | ////////////////// |
1-4 family residential properties and | ////////////////// | ////////////////// | ////////////////// |
extended under lines of credit ........... | 5398 | 5399 1,772 | 5400 2,746 | M.3.c.(1)
(2) All other loans secured by 1-4 family | ////////////////// | ////////////////// | ////////////////// |
residential properties ................... | 5401 | 5402 12,822 | 5403 13,798 | M.3.c.(2)
d. Secured by multifamily (5 or more) | ////////////////// | ////////////////// | ////////////////// |
residential properties ....................... | 3499 | 3500 1,426 | 3501 1,352 | M.3.d.
e. Secured by nonfarm nonresidential properties . | 3502 | 3503 2,212 | 3504 34,836 | M.3.e.
________________________________________________________________
</TABLE>
<TABLE>
<CAPTION>
___________________________________________
| (Column A) | (Column B) |
| Past due 30 | Past due 90 |
| through 89 days | days or more |
____________________ ____________________
| RCFD Bil Mil Thou | RCFD Bil Mil Thou |
____________________ ____________________
<S> <C> <C> <C>
4. Interest rate, foreign exchange rate, and other | ////////////////// | ////////////////// |
commodity and equity contracts: | ////////////////// | ////////////////// |
a. Book value of amounts carried as assets ...... | 3522 | 3528 0 | M.4.a.
b. Replacement cost of contracts with a | ////////////////// | ////////////////// |
positive replacement cost .................... | 3529 | 3530 0 | M.4.b.
___________________________________________
</TABLE>

<PAGE> 50

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-21
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
______________________
Schedule RC-O--Other Data for Deposit Insurance Assessments | C475 |
|____________________|
Dollar Amounts in Thousands | RCON Bil Mil Thou |
___________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Unposted debits (see instructions): | ////////////////// |
a. Actual amount of all unposted debits ...................................................... | 0030 0 | 1.a.
OR | ////////////////// |
b. Separate amount of unposted debits: | ////////////////// |
(1) Actual amount of unposted debits to demand deposits ................................... | 0031 N/A | 1.b.(1)
(2) Actual amount of unposted debits to time and savings deposits(1) ...................... | 0032 N/A | 1.b.(2)
2. Unposted credits (see instructions): | ////////////////// |
a. Actual amount of all unposted credits ..................................................... | 3510 0 | 2.a.
OR | ////////////////// |
b. Separate amount of unposted credits: | ////////////////// |
(1) Actual amount of unposted credits to demand deposits .................................. | 3512 N/A | 2.b.(1)
(2) Actual amount of unposted credits to time and savings deposits(1) ..................... | 3514 N/A | 2.b.(2)
3. Uninvested trust funds (cash) held in bank's own trust department (not included in total | ////////////////// |
deposits in domestic offices) ................................................................ | 3520 28,655 | 3.
4. Deposits of consolidated subsidiaries in domestic offices and in insured branches in | ////////////////// |
Puerto Rico and U.S. territories and possessions (not included in total deposits): | ////////////////// |
a. Demand deposits of consolidated subsidiaries .............................................. | 2211 3,266 | 4.a.
b. Time and savings deposits(1) of consolidated subsidiaries ................................. | 2351 5,000 | 4.b.
c. Interest accrued and unpaid on deposits of consolidated subsidiaries ...................... | 5514 2 | 4.c.
5. Deposits in insured branches in Puerto Rico and U.S. territories and possessions: | ////////////////// |
a. Demand deposits in insured branches (included in Schedule RC-E, Part II) .................. | 2229 0 | 5.a.
b. Time and savings deposits(1) in insured branches (included in Schedule RC-E, Part II) ..... | 2383 0 | 5.b.
c. Interest accrued and unpaid on deposits in insured branches | ////////////////// |
(included in Schedule RC-G, item 1.b) ..................................................... | 5515 0 | 5.c.
______________________
______________________
Item 6 is not applicable to state nonmember banks that have not been authorized by the | ////////////////// |
Federal Reserve to act as pass-through correspondents. | ////////////////// |
6. Reserve balances actually passed through to the Federal Reserve by the reporting bank on | ////////////////// |
behalf of its respondent depository institutions that are also reflected as deposit liabilities| ////////////////// |
of the reporting bank: | ////////////////// |
a. Amount reflected in demand deposits (included in Schedule RC-E, item 4 or 5, column B)..... | 2314 0 | 6.a.
b. Amount reflected in time and savings deposits(1) (included in Schedule RC-E, | ////////////////// |
item 4 or 5, column A or C, but not column B).............................................. | 2315 0 | 6.b.
7. Unamortized premiums and discounts on time and savings deposits:(1) | ////////////////// |
a. Unamortized premiums ...................................................................... | 5516 0 | 7.a.
b. Unamortized discounts ..................................................................... | 5517 0 | 7.b.
______________________

_______________________________________________________________________________________________________________________________
| |
|8. To be completed by banks with "Oakar deposits." |
______________________
| Total "Adjusted Attributable Deposits" of all institutions acquired under Section 5(d)(3) of | ////////////////// | |
| the Federal Deposit Insurance Act (from most recent FDIC Oakar Transaction Worksheet(s)) .... | 5518 864,186 | 8. |
______________________
| |
_______________________________________________________________________________________________________________________________
______________________
9. Deposits in lifeline accounts ................................................................ | 5596 ///////////// | 9.
10. Benefit-responsive "Depository Institution Investment Contracts" (included in total | ////////////////// |
deposits in domestic offices) ................................................................ | 8432 0 | 10.
______________________
<FN>
______________
(1) For FDIC insurance assessment purposes, "time and savings deposits" consists of nontransaction
accounts and all transaction accounts other than demand deposits.
</FN>
</TABLE>

<PAGE> 51

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-22
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-O--Continued

Dollar Amounts in Thousands | RCON Bil Mil Thou |
__________________________________________________________________________________________________ ____________________
<S> <C> <C>
11. Adjustments to demand deposits in domestic offices reported in Schedule RC-E for | ////////////////// |
certain reciprocal demand balances: | ////////////////// |
a. Amount by which demand deposits would be reduced if reciprocal demand balances | ////////////////// |
between the reporting bank and savings associations were reported on a net basis | ////////////////// |
rather than a gross basis in Schedule RC-E .................................................. | 8785 0 | 11.a.
b. Amount by which demand deposits would be increased if reciprocal demand balances | ////////////////// |
between the reporting bank and U.S. branches and agencies of foreign banks were | ////////////////// |
reported on a gross basis rather than a net basis in Schedule RC-E .......................... | A181 0 | 11.b.
c. Amount by which demand deposits would be reduced if cash items in process of | ////////////////// |
collections were included in the calculation of net reciprocal demand balances between | ////////////////// |
the reporting bank and the domestic offices of U.S. banks and savings associations | ////////////////// |
in Schedule RC-E ............................................................................ | A182 0 | 11.c.
____________________
<CAPTION>
Memoranda (to be completed each quarter except as noted) Dollar Amounts in Thousands | RCON Bil Mil Thou |
________________________________________________________________________________________________|____________________|
<S> <C> <C>
1. Total deposits in domestic offices of the bank (sum of Memorandum items 1.a. (1) and | ////////////////// |
1.b.(1) must equal Schedule RC, item 13.a): | ////////////////// |
a. Deposits accounts of $100,000 or less: | ////////////////// |
(1) amount of deposit accounts of $100,000 or less .................................... | 2702 4,389,311 | M.1.a.(1)
(2) Number of deposit accounts of $100,000 or less (to be Number | ////////////////// |
completed for the June report only) ..........................|RCON 3779________N/A | ////////////////// | M.1.a.(2)
b. Deposit accounts of more than $100,000: | ////////////////// |
(1) Amount of deposit accounts of more than $100,000 .................................. | 2710 3,745,428 | M.1.b.(1)
Number | ////////////////// |
(2) Number of deposit accounts of more than $100,000 .............|RCON 2722______6,366 | ////////////////// | M.1.b.(2)
2. Estimated amount of uninsured deposits in domestic offices of the bank:
a. An estimate of your bank's uninsured deposits can be determined by mutiplying the
number of deposit accounts of more than $100,000 reported in Memorandum item 1.b.(2)
above by $100,000 and subtracting the result from the amount of deposit accounts of
more than $100,000 reported in Memorandum item 1.b.(1) above.
</TABLE>

<TABLE>
<S> <C>
Indicate in the appropriate box at the right whether your bank has a method or
procedure for determining a better estimate of uninsured deposits that the ____________YES_______NO__
estimated described above ............................................................... |RCON 6861| |///| x | M.2.a.
</TABLE>

____________________
b. If the box marked YES has been checked, report the estimate of uninsured deposits |RCON Bil Mil Thou|
determined by using your bank's method or procedure .................................... | 5597 N/A | M.2.b.
</TABLE>

<TABLE>
<S> <C>
_____________________________________________________________________________________________________________________________
| C477 | <-
Person to whom questions about the Reports of Condition and Income should be directed: __________

PAMELA S. FLYNN, VICE PRESIDENT (401) 278-5194
___________________________________________________________________________________ ______________________________________
Name and Title (TEXT 8901) Area code and phone number (TEXT 8902)

</TABLE>

<PAGE> 52

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-23
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-R--Regulatory Capital

This schedule must be completed by all banks as follows: Banks that reported total assets of $1 billion or more in Schedule RC,
item 12, for June 30, 1995, must complete items 2 through 9 and Memoranda items 1 and 2. Banks with assets of less than
$1 billion must complete items 1 through 3 below or Schedule RC-R in its entirety, depending on their response to item 1 below.
<S> <C>
____________
| C480 | <-
1. Test for determining the extent to which Schedule RC-R must be completed. To be completed _____|__________|
only by banks with total assets of less than $1 billion. Indicate in the appropriate | YES NO |
box at the right whether the bank has total capital greater than or equal to eight percent___________ _______________
of adjusted total assets ............................................................... | RCFD 6056 | |////| | 1.
_____________________________
For purposes of this test, adjusted total assets equals total assets less cash, U.S. Treasuries, U.S. Government
agency obligations, and 80 percent of U.S. Government-sponsored agency obligations plus the allowance for loan
and lease losses and selected off-balance sheet items as reported on Schedule RC-L (see instructions).
If the box marked YES has been checked, then the bank only has to complete items 2 and 3 below. If the box marked
NO has been checked, the bank must complete the remainder of this schedule.
A NO response to item 1 does not necessarily mean that the bank's actual risk-based capital ratio is less than eight
percent or that the bank is not in compliance with the risk-based capital guidelines.
</TABLE>
<TABLE>
<CAPTION>
___________________________________________
| (Column A) | (Column B) |
|Subordinated Debt(1)| Other |
| and Intermediate | Limited- |
Items 2 and 3 are to be completed by all banks. | Term Preferred | Life Capital |
| Stock | Instruments |
____________________ ____________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou |
______________________________________________________________________________ ____________________ ____________________
<S> <C> <C> <C>
2. Subordinated debt(1) and other limited-life capital instruments (original | ////////////////// | ////////////////// |
weighted average maturity of at least five years) with a remaining | ////////////////// | ////////////////// |
maturity of: | ////////////////// | ////////////////// |
a. One year or less ...................................................... | 3780 0 | 3786 0 | 2.a.
b. Over one year through two years ....................................... | 3781 0 | 3787 0 | 2.b.
c. Over two years through three years .................................... | 3782 0 | 3788 0 | 2.c.
d. Over three years through four years ................................... | 3783 0 | 3789 0 | 2.d.
e. Over four years through five years .................................... | 3784 0 | 3790 0 | 2.e.
f. Over five years ....................................................... | 3785 440,000 | 3791 0 | 2.f.
3. Amounts used in calculating regulatory capital ratios (report amounts | ////////////////// | ////////////////// |
determined by the bank for its own internal regulatory capital analyses): | ////////////////// | RCFD Bil Mil Thou |
a. Tier 1 capital......................................................... | ////////////////// | 8274 1,131,906 | 3.a.
b. Tier 2 capital......................................................... | ////////////////// | 8275 614,539 | 3.b.
c. Total risk-based capital............................................... | ////////////////// | 3792 1,746,445 | 3.c.
d. Excess allowance for loan and lease losses............................. | ////////////////// | A222 85,540 | 3.d.
e. Risk-weighted assets................................................... | ////////////////// | A223 13,877,543 | 3.e.
f. "Average total assets"................................................. | ////////////////// | A224 15,490,668 | 3.f.
___________________________________________
| (Column A) | (Column B) |
Items 4-9 and Memoranda items 1 and 2 are to be completed | Assets | Credit Equiv- |
by banks that answered NO to item 1 above and | Recorded | alent Amount |
by banks with total assets of $1 billion or more. | on the | of Off-Balance |
| Balance Sheet | Sheet Items(2) |
____________________ ____________________
| RCFD Bil Mil Thou | RCFD Bil Mil Thou |
____________________ ____________________
<S> <C> <C> <C>
4. Assets and credit equivalent amounts of off-balance sheet items assigned | | |
to the Zero percent risk category: | ////////////////// | ////////////////// |
a. Assets recorded on the balance sheet: | ////////////////// | ////////////////// |
(1) Securities issued by, other claims on, and claims unconditionally | ////////////////// | ////////////////// |
guaranteed by, the U.S. Government and its agencies and other | ////////////////// | ////////////////// |
OECD central governments .......................................... | 3794 848,861 | ////////////////// | 4.a.(1)
(2) All other ......................................................... | 3795 168,507 | ////////////////// | 4.a.(2)
b. Credit equivalent amount of off-balance sheet items ................... | ////////////////// | 3796 0 | 4.b.
___________________________________________
<FN>
______________
(1) Exclude mandatory convertible debt reported in Schedule RC-M, item 7.
(2) Do not report in column B the risk-weighted amount of assets reported in column A.
</FN>
</TABLE>

<PAGE> 53

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-24
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-R--Continued
___________________________________________
| (Column A) | (Column B) |
| Assets | Credit Equiv- |
| Recorded | alent Amount |
| on the | of Off-Balance |
| Balance Sheet | Sheet Items(1) |
____________________ ____________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou |
______________________________________________________________________________ ____________________ ____________________
<S> <C> <C> <C>
5. Assets and credit equivalent amounts of off-balance sheet items | ////////////////// | ////////////////// |
assigned to the 20 percent risk category: | ////////////////// | ////////////////// |
a. Assets recorded on the balance sheet: | ////////////////// | ////////////////// |
(1) Claims conditionally guaranteed by the U.S. Government and its | ////////////////// | ////////////////// |
agencies and other OECD central governments ....................... | 3798 21,083 | ////////////////// | 5.a.(1)
(2) Claims collateralized by securities issued by the U.S. Govern- | ////////////////// | ////////////////// |
ment and its agencies and other OECD central governments; by | ////////////////// | ////////////////// |
securities issued by U.S. Government-sponsored agencies; and | ////////////////// | ////////////////// |
by cash on deposit ................................................ | 3799 0 | ////////////////// | 5.a.(2)
(3) All other ......................................................... | 3800 1,567,242 | ////////////////// | 5.a.(3)
b. Credit equivalent amount of off-balance sheet items ................... | ////////////////// | 3801 67,114 | 5.b.
6. Assets and credit equivalent amounts of off-balance sheet items | ////////////////// | ////////////////// |
assigned to the 50 percent risk category: | ////////////////// | ////////////////// |
a. Assets recorded on the balance sheet .................................. | 3802 2,037,765 | ////////////////// | 6.a.
b. Credit equivalent amount of off-balance sheet items ................... | ////////////////// | 3803 116,963 | 6.b.
7. Assets and credit equivalent amounts of off-balance sheet items | ////////////////// | ////////////////// |
assigned to the 100 percent risk category: | ////////////////// | ////////////////// |
a. Assets recorded on the balance sheet .................................. | 3804 9,551,472 | ////////////////// | 7.a.
b. Credit equivalent amount of off-balance sheet items ................... | ////////////////// | 3805 3,288,367 | 7.b.
8. On-balance sheet asset values excluded from the calculation of the | ////////////////// | ////////////////// |
risk-based capital ratio(2) .............................................. | 3806 (7,286)| ////////////////// | 8.
9. Total assets recorded on the balance sheet (sum of | ////////////////// | ////////////////// |
items 4.a, 5.a, 6.a, 7.a, and 8, column A)(must equal Schedule RC, | ////////////////// | ////////////////// |
item 12 plus items 4.b and 4.c) .......................................... | 3807 14,187,644 | ////////////////// | 9.
___________________________________________
</TABLE>

<TABLE>
<CAPTION>
Memoranda
______________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou |
__________________________________________________________________________________________________ ____________________
<S> <C> <C>
1.Current credit exposure across all off-balance sheet derivative contracts covered by the | ///////////////// |
risked-based capital standards ...................................................................| 8764 6,077| M.1.
|___________________|
</TABLE>

________________________________________________________________
| With a remaining maturity of |
|______________________________________________________________|
| (Column A) | (Column B) | (Column C) |
| | | |
| One year or less | Over one year | Over five years |
| | through five years | |
|______________________________________________________________|
|RCFD Tril Bil Mil Th|RCFD Tril Bil Mil Th|RCFD Tril Bil Mil Th|
|____________________|____________________|____________________|
<C> <C> <C> <C>
2. Notional principal amounts of
off-balance sheet derivative contracts(3):| | | |
a. Interest rate contracts ................. | 3809 1,308,203 | 8766 3,328,625 | 8767 0 | M.2.a.
b. Foreign exchange contracts .............. | 3812 0 | 8769 0 | 8770 0 | M.2.b.
c. Gold contracts .......................... | 8771 0 | 8772 0 | 8773 0 | M.2.c.
d. Other precious metals contracts ......... | 8774 0 | 8775 0 | 8776 0 | M.2.d.
e. Other commodity contracts ............... | 8777 0 | 8778 0 | 8779 0 | M.2.e.
f. Equity derivative contracts ............. | A000 0 | A001 0 | A002 0 | M.2.f.
|______________________________________________________________|
<FN>
_________________
1) Do not report in column B the risk-weighted amount of assets reported in column A.
2) Include the difference between the fair value and the amortized cost of available-for-sale securities in item 8 and report
the amortized cost of these securities in items 4 through 7 above. Item 8 also includes on-balance sheet asset values (or
portions thereof) of off-balance sheet interest rate, foreign exchange rate, and commodity contracts and those contracts (e.g.,
futures contracts) not subject to risk-based capital. Exclude from item 8 margin accounts and accrued receivables as well as
any portion of the allowance for loan and lease losses in excess of the amount that may be included in Tier 2 capital.
3) Exclude foreign exchange contracts with an original maturity of 14 days or less and all futures contracts.
</FN>
</TABLE>

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590
Address: 777 MAIN STREET
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
</TABLE>

<TABLE>
<CAPTION>
THIS PAGE IS TO BE COMPLETED BY ALL BANKS
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
| OMB No. For OCC: 1557-0081
Name and address of Bank | OMB No. For FDIC: 3064-0052
| OMB No. For Federal Reserve: 7100-0036
| Expiration Date: 3/31/96
|
PLACE LABEL HERE |
| SPECIAL REPORT
| (Dollar Amounts in Thousands)
|
|___________________________________________________________________
| CLOSE OF BUSINESS| FDIC Certificate Number | |
| DATE | | C-700 | <-
| 12/31/95 | |0|2|4|9|9 | |
__________________________________________________________________________________________________________________________________
</TABLE>

LOANS TO EXECUTIVE OFFICERS (Complete as of each Call Report Date)
- --------------------------------------------------------------------------------

The following information is required by Public Laws 90-44 and 102-242, but does
not constitute a part of the Report of Condition. With each Report of Condition,
these Laws require all banks to furnish a report of all loans or other
extensions of credit to their executive officers made since the date of the
previous Report of Condition. Data regarding individual loans or other
extensions of credit are not required. If no such loans or other extensions of
credit were made during the period, insert "none" against subitem (a). (Exclude
the first $15,000 of indebtedness of each executive officer under bank credit
card plan.) See Sections 215.2 and 215.3 of Title 12 of the Code of Federal
Regulations (Federal Reserve Board Regulation 0) for the definitions of
"executive officer" and "extension of credit," respectively. Exclude loans and
other extensions of credit to directors and principal shareholders who are not
executive officers.
________________________________________________________________________________

________________________________________________________________________________

<TABLE>
<S> <C>
________________________________________________________________________________________________________________________________
SIGNATURE OF TITLE OF OFFICER AUTHORIZED TO SIGN REPORT | DATE (Month, Day, Year)
|
|
________________________________________________________________________________________________________________________________
NAME AND TITLE OF PERSON TO WHOM INQUIRIES MAY BE DIRECTED (TEXT 8903) | AREA CODE/PHONE NUMBER/EXTENSION
| (TEXT 8904)
|
ROBERT P. DUFF VICE PRESIDENT | (203) 986-2474
|
________________________________________________________________________________________________________________________________
FDIC 8040/53 (6-95)
</TABLE>

<PAGE> 54

Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT
<TABLE>
<S> <C>
Address: 777 MAIN STREET Call Date: 3/31/96 ST-BK: 09-0590 FFIEC 031
City, State, Zip: HARTFORD, CT 06115 Page RC-25
FDIC Certificate No.: 02499
</TABLE>

Optional Narrative Statement Concerning the Amounts
Reported in the Reports of Condition and Income
at close of business on March 31, 1996

FLEET NATIONAL BANK OF CONNECTICUT HARTFORD , CONNECTICUT
Legal Title of Bank City State

The management of the reporting bank may, if it wishes, submit a brief
narrative statement on the amounts reported in the Reports of Condition and
Income. This optional statement will be made available to the public, along
with the publicly available data in the Reports of Condition and Income, in
response to any request for individual bank report data. However, the
information reported in column A and in all of Memorandum item 1 of Schedule
RC-N is regarded as confidential and will not be released to the public.
BANKS CHOOSING TO SUBMIT THE NARRATIVE STATEMENT SHOULD ENSURE THAT THE
STATEMENT DOES NOT CONTAIN THE NAMES OR OTHER IDENTIFICATIONS OF INDIVIDUAL
BANK CUSTOMERS, REFERENCES TO THE AMOUNTS REPORTED IN THE CONFIDENTIAL ITEMS
IN SCHEDULE RC-N, OR ANY OTHER INFORMATION THAT THEY ARE NOT WILLING TO HAVE
MADE PUBLIC OR THAT WOULD COMPROMISE THE PRIVACY OF THEIR CUSTOMERS. Banks
choosing not to make a statement may check the "No comment" box below and
should make no entries of any kind in the space provided for the narrative
statement; i.e., DO NOT enter in this space such phrases as "No statement,"
"Not applicable," "N/A," "No comment," and "None."

The optional statement must be entered on this sheet. The statement should
not exceed 100 words. Further, regardless of the number of words, the
statement must not exceed 750 characters, including punctuation, indentation,
and standard spacing between words and sentences. If any submission should
exceed 750 characters, as defined, it will be truncated at 750 characters with
no notice to the submitting bank and the truncated statement will appear as the
bank's statement both on agency computerized records and in computer-file
releases to the public.

All information furnished by the bank in the narrative statement must be
accurate and not misleading. Appropriate efforts shall be taken by the
submitting bank to ensure the statement's accuracy. The statement must be
signed, in the space provided below, by a senior officer of the bank who
thereby attests to its accuracy.

If, subsequent to the original submission, material changes are submitted for
the data reported in the Reports of Condition and Income, the existing
narrative statement will be deleted from the files, and from disclosure; the
bank, at its option, may replace it with a statement, under signature,
appropriate to the amended data.

The optional narrative statement will appear in agency records and in release
to the public exactly as submitted (or amended as described in the preceding
paragraph) by the management of the bank (except for the truncation of
statements exceeding the 750-character limit described above). THE STATEMENT
WILL NOT BE EDITED OR SCREENED IN ANY WAY BY THE SUPERVISORY AGENCIES FOR
ACCURACY OR RELEVANCE. DISCLOSURE OF THE STATEMENT SHALL NOT SIGNIFY THAT ANY
FEDERAL SUPERVISORY AGENCY HAS VERIFIED OR CONFIRMED THE ACCURACY OF THE
INFORMATION CONTAINED THEREIN. A STATEMENT TO THIS EFFECT WILL APPEAR ON ANY
PUBLIC RELEASE OF THE OPTIONAL STATEMENT SUBMITTED BY THE MANAGEMENT OF THE
REPORTING BANK.
_____________________________________________________________________________
No comment |X| )RCON 6979) | c471 | C472 |

BANK MANAGEMENT STATEMENT (please type or print clearly):
(TEXT 6980)

__Gero DeRosa_______________________________ ___4/25/96________
Signature of Executive Officer of Bank Date of Signature

<PAGE> 1

EXHIBIT 99.1

LETTER OF TRANSMITTAL

FOR

10 1/2% SENIOR NOTES DUE 2006

CALPINE CORPORATION

PURSUANT TO THE EXCHANGE OFFER IN RESPECT OF
ALL OF ITS OUTSTANDING 10 1/2% SENIOR NOTES DUE 2006
FOR
10 1/2% SENIOR NOTES DUE 2006
------------------------

PURSUANT TO THE PROSPECTUS DATED JUNE , 1996
- --------------------------------------------------------------------------------

THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1996 UNLESS THE EXCHANGE OFFER IS EXTENDED (THE "EXPIRATION
DATE"). TENDERS OF OLD NOTES MAY BE WITHDRAWN AT ANY TIME PRIOR TO 5:00
P.M. ON THE BUSINESS DAY PRIOR TO THE EXPIRATION DATE.
- --------------------------------------------------------------------------------

TO: FLEET NATIONAL BANK, EXCHANGE AGENT

<TABLE>
<S> <C> <C>
By Mail: By Facsimile: By Hand:
Fleet National Bank (860) 986-7908 Fleet National Bank
Corporate Trust Operations Confirm by Telephone: Corporate Trust Operations
777 Main Street, Lower Level (860) 986-2910 777 Main Street, Lower Level
CTMO 0224 Hartford, Connecticut 06115
Hartford, Connecticut 06115 Attention: Patricia Williams
Attention: Patricia Williams
</TABLE>

DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS, OR TRANSMISSION VIA
TELEGRAM, TELEX OR FACSIMILE, OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE
A VALID DELIVERY. THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY
BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.

HOLDERS WHO WISH TO BE ELIGIBLE TO RECEIVE NEW NOTES FOR THEIR OLD NOTES
PURSUANT TO THE EXCHANGE OFFER MUST VALIDLY TENDER (AND NOT WITHDRAW) THEIR OLD
NOTES TO THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE.

By execution hereof, the undersigned acknowledges receipt of the prospectus
dated June , 1996 (the "Prospectus") of Calpine Corporation, a California
corporation (the "Company"), which, together with this Letter of Transmittal and
the instructions hereto (the "Letter of Transmittal"), constitutes the Company's
offer (the "Exchange Offer") to exchange $1,000 principal amount of its 10 1/2%
Senior Notes Due 2006 (the "New Notes"), which have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
registration statement of which the Prospectus constitutes a part, for each
$1,000 principal amount of its outstanding 10 1/2% Senior Notes Due 2006 (the
"Old Notes"), upon the terms and subject to the conditions set forth in the
Prospectus.

This Letter of Transmittal is to be used by Holders (as defined below) if:
(i) certificates representing Old Notes are to be physically delivered to the
Exchange Agent herewith by Holders; (ii) tender of Old Notes is to be made by
book-entry transfer to the Exchange Agent's account at The Depository Trust
Company ("DTC") pursuant to the procedures set forth in the Prospectus under
"The Exchange Offer -- Procedures for Tendering" by any financial institution
that is a participant in DTC and whose name appears on a security position
listing as the owner of Old Notes (such participants, acting on behalf of
Holders are referred to herein, together with such Holders, as "Acting
Holders"); or (iii) tender of Old Notes is to be made according to the
guaranteed delivery procedures set forth in the Prospectus under "The Exchange
Offer -- Guaranteed Delivery Procedures," and, in each case, instructions are
being transmitted through the DTC Automated Tender Offer Program ("ATOP").
DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.

The term "Holder" with respect to the Exchange Offer means any person: (i)
in whose name Old Notes are registered on the books of the Company or any other
person who has obtained a properly completed bond power from the registered
Holder; or (ii) whose Old Notes are held of record by DTC and who desires to
deliver such Old Notes by book-entry transfer at DTC.

The undersigned has completed, executed and delivered this Letter of
Transmittal to indicate the action the undersigned desires to take with respect
to the Exchange Offer. Holders who wish to tender their Old Notes must complete
this letter in its entirety.

All capitalized terms used herein and not defined shall have the meaning
ascribed to them in the Prospectus.
<PAGE> 2

The instructions included with this Letter of Transmittal must be followed.
Questions and requests for assistance or for additional copies of the
Prospectus, this Letter of Transmittal and the Notice of Guaranteed Delivery may
be directed to the Exchange Agent. See Instruction 8 herein.

HOLDERS WHO WISH TO ACCEPT THE EXCHANGE OFFER AND TENDER THEIR OLD NOTES
MUST COMPLETE THIS LETTER OF TRANSMITTAL IN ITS ENTIRETY.

List below the Old Notes to which this Letter of Transmittal relates. If
the space provided below is inadequate, list the certificate numbers and
principal amounts on a separately executed schedule and affix the schedule to
this Letter of Transmittal. Tender of Old Notes will be accepted only in
principal amounts equal to $1,000 or integral multiples thereof.

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

DESCRIPTION OF OLD NOTES

<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------
CERTIFICATE NUMBER(S)* AGGREGATE PRINCIPAL
NAME(S) AND ADDRESS(ES) OF HOLDER(S) (ATTACH SIGNED LIST AMOUNT TENDERED
(PLEASE FILL IN IF BLANK) IF NECESSARY) (IF LESS THAN ALL)**
- ------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL PRINCIPAL AMOUNT OF OLD NOTES TENDERED
- ------------------------------------------------------------------------------------------------------------------------------
* Need not be completed by Holders tendering by book-entry transfer.
** Need not be completed by Holders who wish to tender with respect to all Old Notes listed. See Instruction 2.
</TABLE>

- --------------------------------------------------------------------------------
<PAGE> 3

/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY DTC TO THE EXCHANGE
AGENT'S ACCOUNT AT DTC AND COMPLETE THE FOLLOWING:

Name of Tendering Institution:

DTC Book-Entry Account No.:

Transaction Code No.:

If Holders desire to tender Old Notes pursuant to the Exchange Offer and (i)
certificates representing such Old Notes are not lost but are not immediately
available, (ii) time will not permit this Letter of Transmittal, certificates
representing such Old Notes or other required documents to reach the Exchange
Agent prior to the Expiration Date or (iii) the procedures for book-entry
transfer cannot be completed prior the Expiration Date, such Holders may effect
a tender of such Old Notes in accordance with the guaranteed delivery procedures
set forth in the Prospectus under "The Exchange Offer--Guaranteed Delivery
Procedures." DTC participants may also accept the Exchange Offer by submitting
the notice of guaranteed delivery through ATOP.

/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY DELIVERED TO THE EXCHANGE AGENT AND
COMPLETE THE FOLLOWING:

Name(s) of Holder(s) of Old Notes:

Window Ticket No. (if any):

Date of Execution of
Notice of Guaranteed Delivery:

Name of Eligible Institution that Guaranteed Delivery:

If Delivered by Book-Entry Transfer:
Name of Tendering Institution:

DTC Book-Entry Account No.:

Transaction Code No.:

/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.

Name:

Address:

/ / CHECK HERE IF TENDERED NOTES ARE ENCLOSED HEREWITH.
<PAGE> 4

Ladies and Gentlemen:

Subject to the terms of the Exchange Offer, the undersigned hereby tenders
to the Company the principal amount of Old Notes indicated above. Subject to and
effective upon the acceptance for exchange of the principal amount of Old Notes
tendered in accordance with this Letter of Transmittal, the undersigned sells,
assigns and transfers to, or upon the order of, the Company all right, title and
interest in and to the Old Notes tendered hereby. The undersigned hereby
irrevocably constitutes and appoints the Exchange Agent its agent and
attorney-in-fact (with full knowledge that the Exchange Agent also acts as the
agent of the Company and as Trustee under the Indenture for the Old Notes and
the New Notes) with respect to the tendered Old Notes with full power of
substitution to (i) deliver certificates for such Old Notes to the Company, or
transfer ownership of such Old Notes on the account books maintained by DTC
together, in either such case, with all accompanying evidences of transfer and
authenticity to, or upon the order of, the Company and (ii) present such Old
Notes for transfer on the books of the Company and receive all benefits and
otherwise exercise all rights of beneficial ownership of such Old Notes, all in
accordance with the terms of the Exchange Offer. The power of attorney granted
in this paragraph shall be deemed irrevocable and coupled with an interest.

The undersigned hereby represents and warrants that he or she has full
power and authority to tender, sell, assign and transfer the Old Notes tendered
hereby and that the Company will acquire good and unencumbered title thereto,
free and clear of all liens, restrictions, charges and encumbrances and not
subject to any adverse claim, when the same are acquired by the Company. The
undersigned also acknowledges that this Exchange Offer is being made in reliance
upon an interpretation by the staff of the Securities and Exchange Commission
that the New Notes issued in exchange for the Old Notes pursuant to the Exchange
Offer may be offered for sale, resold and otherwise transferred by any holder
thereof (other than (i) a broker-dealer who purchased such Old Notes directly
from the Company to resell pursuant to Rule 144A or any other available
exemption under the Securities Act or (ii) a person that is an "affiliate" of
the Company within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that the holder is acquiring the New Notes in its
ordinary course of business and is not participating, and has no arrangement or
understanding with any person to participate, in the distribution of the New
Notes.

The undersigned represents that (i) the New Notes acquired pursuant to the
Exchange Offer are being obtained in the ordinary course of such holder's
business, (ii) such holder has no arrangements or understandings with any person
to participate in the distribution of such New Notes and (iii) such holder is
not an "affiliate," as defined under Rule 405 of the Securities Act, of the
Company or, if such holder is an affiliate, that such holder will comply with
the registration and prospectus delivery requirements of the Securities Act to
the extent applicable. If the undersigned is not a broker-dealer, the
undersigned represents that it is not engaged in, and does not intend to engage
in, a distribution of New Notes. If the undersigned is a broker-dealer that will
receive New Notes for its own account in exchange for Old Notes that were
acquired as a result of market-making or other trading activities, it
acknowledges that it will deliver a prospectus in connection with any resale of
such New Notes; however, by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.

The undersigned will, upon request, execute and deliver any additional
documents deemed by the Exchange Agent or the Company to be necessary or
desirable to complete the assignment and transfer of the Old Notes tendered
hereby.

For purposes of the Exchange Offer, the Company shall be deemed to have
accepted validly tendered Old Notes when the Company has given oral or written
notice thereof to the Exchange Agent. If any tendered Old Notes are not accepted
for exchange pursuant to the Exchange Offer for any reason, certificates for any
such unaccepted Old Notes will be returned (except as noted below with respect
to tenders through DTC), without expense, to the undersigned at the address
shown below or at a different address shown below or at a different address as
may be indicated under "Special Issuance Instructions" as promptly as
practicable after the Expiration Date.

All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned and every obligation under this Letter of Transmittal shall be
binding upon the undersigned's heirs, personal representatives, successors and
assigns.

The undersigned understands that tenders of Old Notes pursuant to the
procedures described under the caption "The Exchange Offer -- Procedures for
Tendering" in the Prospectus and in the instructions hereto will constitute a
binding agreement between the undersigned and the Company upon the terms and
subject to the conditions of the Exchange Offer.

All questions as to form, validity, eligibility (including time of
receipt), acceptance and withdrawal of tendered Old Notes will be determined by
the Company in its sole discretion, which determination will be final and
binding.

Unless otherwise indicated under "Special Issuance Instructions," please
issue the certificates representing the New Notes issued in exchange for the Old
Notes accepted for exchange and return any Old Notes not tendered or not
exchanged, in the name(s) of the undersigned (or in either such event in the
case of Old Notes tendered by DTC, by credit to the account at DTC). Similarly,
unless otherwise indicated under "Special Delivery Instructions," please send
the certificates representing the New Notes issued in exchange for the Old Notes
accepted for exchange and any certificates for Old Notes not tendered or not
exchanged (and accompanying documents, as appropriate) to the undersigned at the
address shown below the undersigned's signatures, unless, in either event,
tender is being made through DTC. In the event that both "Special Issuance
Instructions" and "Special Delivery Instructions" are completed, please issue
the certificates representing the New Notes issued in exchange for the Old Notes
accepted for exchange and return any Old Notes not tendered or not exchanged in
the name(s) of, and send said certificates to, the person(s) so indicated. The
undersigned recognizes that the Company has no obligation pursuant to the
"Special Issuance Instructions" and "Special Delivery Instructions" to transfer
any Old Notes from the name of the registered holder(s) thereof if the Company
does not accept for exchange any of the Old Notes so tendered.
<PAGE> 5

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

PLEASE SIGN HERE

(TO BE COMPLETED BY ALL TENDERING HOLDERS OF
OLD NOTES REGARDLESS OF WHETHER OLD NOTES ARE BEING PHYSICALLY
DELIVERED HEREWITH)

This Letter of Transmittal must be signed by the Holder(s) of Old
Notes exactly as their name(s) appear(s) on certificate(s) for Old Notes
or, if tendered by a participant in DTC, exactly as such participant's
name appears on a security position listing as the owner of Old Notes, or
by person(s) authorized to become registered Holder(s) by endorsements and
documents transmitted with this Letter of Transmittal. If signature is by
a trustee, executor, administrator, guardian, attorney-in-fact, officer or
other person acting in a fiduciary or representative capacity, such person
must set forth his or her full title below under "Capacity" and submit
evidence satisfactory to the Company of such person's authority to so act.
See Instruction 3 herein.

If the signature appearing below is not of the registered Holder(s)
of the Old Notes, then the registered Holder(s) must sign a valid proxy.

<TABLE>
<S> <C>
X --------------------------------------------- Date: -----------------------------------------
X --------------------------------------------- Date: -----------------------------------------
SIGNATURE(S) OF HOLDER(S) OR AUTHORIZED
SIGNATORY
Name(s): -------------------------------------- Address: --------------------------------------
----------------------------------------------
----------------------------------------------- (INCLUDING ZIP CODE)
(PLEASE PRINT)
Capacity: ------------------------------------- Area Code and Telephone
No.: ------------------------------------------
Social Security
No.: ------------------------------------------
</TABLE>

PLEASE COMPLETE SUBSTITUTE FORM W-9 HEREIN

MEDALLION SIGNATURE GUARANTEE
(IF REQUIRED -- SEE INSTRUCTION 3 HEREIN)

--------------------------------------------------------------------------
(NAME OF ELIGIBLE INSTITUTION GUARANTEEING SIGNATURES)

--------------------------------------------------------------------------
(ADDRESS (INCLUDING ZIP CODE) AND TELEPHONE NUMBER (INCLUDING AREA CODE)
OF FIRM)

--------------------------------------------------------------------------
(AUTHORIZED SIGNATURE)

--------------------------------------------------------------------------
(PRINTED NAME)

--------------------------------------------------------------------------
(TITLE)

Date:
------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 6

SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTION 1, 3 AND 4 HEREIN)

To be completed ONLY if certificates for Old Notes in a principal amount not
tendered are to be issued in the name of, or the New Notes issued pursuant to
the Exchange Offer are to be issued to the order of, someone other than the
person or persons whose signature(s) appear(s) within this Letter of Transmittal
or issued to an address different from that shown in the box entitled
"Description of Old Notes" within this Letter of Transmittal, or if Old Notes
tendered by book-entry transfer that are not accepted for purchase are to be
credited to an account maintained at DTC.

Name
(PLEASE PRINT)

Address
(PLEASE PRINT)

(ZIP CODE)

TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER
(SEE SUBSTITUTE FORM W-9 HEREIN)

SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTION 1, 3 AND 4 HEREIN)

To be completed ONLY if certificates for Old Notes in a principal amount not
tendered or not accepted for purchase or the New Notes issued pursuant to the
Exchange Offer are to be sent to someone other than the person or persons whose
signature(s) appear(s) within this Letter of Transmittal or issued to an address
different from that shown in the box entitled "Description of Old Notes" within
this Letter of Transmittal.

Name
(PLEASE PRINT)

Address
(PLEASE PRINT)

(ZIP CODE)

TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER
(SEE SUBSTITUTE FORM W-9 HEREIN)
<PAGE> 7

INSTRUCTIONS

FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER AND THE SOLICITATION

1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND OLD NOTES. The certificates
for the tendered Old Notes (or a confirmation of a book-entry transfer into the
Exchange Agent's account at DTC of all Old Notes delivered electronically), as
well as a properly completed and duly executed copy of this Letter of
Transmittal or facsimile hereof and any other documents required by this Letter
of Transmittal must be received by the Exchange Agent at its address set forth
herein prior to 5:00 P.M., New York City time, on the Expiration Date. The
method of delivery of the tendered Old Notes, this Letter of Transmittal and all
other required documents to the Exchange Agent is at the election and risk of
the Holder and, except as otherwise provided below, the delivery will be deemed
made only when actually received by the Exchange Agent. Instead of delivery by
mail, it is recommended that the Holder use an overnight or hand delivery
service. In all cases, sufficient time should be allowed to assure timely
delivery. No Letter of Transmittal or Old Notes should be sent to the Company.

Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes, this Letter of
Transmittal or any other documents required hereby to the Exchange Agent prior
to the Expiration Date must tender their Old Notes and follow the guaranteed
delivery procedures set forth in the Prospectus. Pursuant to such procedures:
(i) such tender must be made by or through an Eligible Institution; (ii) prior
to the Expiration Date, the Exchange Agent must have received from the Eligible
Institution a properly completed and duly executed Notice of Guaranteed Delivery
(by facsimile transmission, mail or hand delivery) setting forth the name and
address of the Holder of the Old Notes, the certificate number or numbers of
such Old Notes and the principal amount of Old Notes tendered, stating that the
tender is being made thereby and guaranteeing that, within five business days
after the Expiration Date, this Letter of Transmittal (or facsimile hereof)
together with the certificate(s) representing the Old Notes (or a confirmation
of electronic delivery of book-entry transfer into the Exchange Agent's account
at DTC) and any of the required documents will be deposited by the Eligible
Institution with the Exchange Agent; and (iii) such properly completed and
executed Letter of Transmittal (or facsimile hereof), as well as all other
documents required by this Letter of Transmittal and the certificate(s)
representing all tendered Old Notes in proper form for transfer (or a
confirmation of electronic mail delivery of book-entry transfer into the
Exchange Agent's account at DTC), must be received by the Exchange Agent within
five business days after the Expiration Date, all as provided in the Prospectus
under the caption "Guaranteed Delivery Procedures." Any Holder of Old Notes who
wishes to tender his or her Old Notes pursuant to the guaranteed delivery
procedures described above must ensure that the Exchange Agent receives the
Notice of Guaranteed Delivery prior to 5:00 P.M., New York City time, on the
Expiration Date.

All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Old Notes will be determined by
the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Old Notes
not properly tendered or any Old Notes the Company's acceptance of which would,
in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right to waive any irregularities or conditions of tender as to
particular Old Notes. The Company's interpretation of the terms and conditions
of the Exchange Offer (including the instructions in this Letter of Transmittal)
will be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes must be cured within such
time as the Company shall determine. Neither the Company, the Exchange Agent nor
any other person shall be under any duty to give notification of defects or
irregularities with respect to tenders of Old Notes, nor shall any of them incur
any liability for failure to give such notification. Tenders of Old Notes will
not be deemed to have been made until such defects or irregularities have been
cured or waived. Any Old Notes received by the Exchange Agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned without cost by the Exchange Agent to the
tendering Holders of Old Notes, unless otherwise provided in this Letter of
Transmittal, as soon as practicable following the Expiration Date.

2. PARTIAL TENDERS. Tenders of Old Notes will be accepted in all
denominations of $1,000 and integral multiples in excess thereof. If less than
the entire principal amount of any Old Notes is tendered, the tendering Holder
should fill in the principal amount tendered in the third column of the chart
entitled "Description of Old Notes." The entire principal amount of Old Notes
delivered to the Exchange Agent will be deemed to have been tendered unless
otherwise indicated. If the entire principal amount of all Old Notes is not
tendered, Old Notes for the principal amount of Old Notes not tendered and a
certificate or certificates representing New Notes issued in exchange for any
Old Notes accepted will be sent to the Holder at his or her registered address,
unless a different address is provided in the appropriate box on this Letter of
Transmittal or unless tender is made through DTC, promptly after the Old Notes
are accepted for exchange.

3. SIGNATURES ON THE LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS;
GUARANTEE OF SIGNATURES. If this Letter of Transmittal (or facsimile hereof) is
signed by the registered Holder(s) of the Old Notes tendered hereby, the
signature must correspond with the name(s) as written on the face of the Old
Notes without alteration, enlargement or any change whatsoever.

If this Letter of Transmittal (or facsimile hereof) is signed by the
registered Holder(s) of Old Notes tendered and the certificate(s) for New Notes
issued in exchange therefor is to be issued (or any untendered principal amount
of Old Notes is to be reissued) to the registered Holder, such Holder need not
and should not endorse any tendered Old Note, nor provide a separate bond power.
In any other case, such holder must either properly endorse the Old Notes
tendered or transmit a properly completed separate bond power with this Letter
of Transmittal, with the signatures on the endorsement or bond power guaranteed
by a recognized member of the Medallion Signature Guarantee Program.

If this Letter of Transmittal (or facsimile hereof) is signed by a person
other than the registered Holder(s) of any Old Notes listed, such Old Notes must
be endorsed or accompanied by appropriate bond powers signed as the name of the
registered Holder(s) appears on the Old Notes.
<PAGE> 8

If this Letter of Transmittal (or facsimile hereof) or any Old Notes or
bond powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, or officers of corporations or others acting in a fiduciary
or representative capacity, such persons should so indicate when signing, and
unless waived by the Company, evidence satisfactory to the Company of their
authority so to act must be submitted with this Letter of Transmittal.

Endorsements on Old Notes or signatures on bond powers required by this
Instruction 3 must be guaranteed by a recognized member of the Medallion
Signature Guarantee Program.

Signatures on this Letter of Transmittal (or facsimile hereof) must be
guaranteed by a recognized member of the Medallion Signature Guarantee Program
unless the Old Notes tendered pursuant thereto are tendered (i) by a registered
Holder (including any participant in DTC whose name appears on a security
position listing as the owner of Old Notes) who has not completed the box set
forth herein entitled "Special Issuance Instructions" or the box entitled
"Special Delivery Instructions" or (ii) for the account of a member of a
registered national securities exchange, a member of the National Association of
Securities Dealers, Inc. or a commercial bank or trust company having an office
or correspondent in the United States (each of the foregoing being referred to
as an "Eligible Institution").

4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering Holders should
indicate, in the applicable spaces, the name and address to which New Notes or
substitute Old Notes for principal amounts not tendered or not accepted for
exchange are to be issued or sent, if different from the name and address of the
person signing this Letter of Transmittal (or in the case of tender of the Old
Notes through DTC, if different from DTC). In the case of issuance in a
different name, the taxpayer identification or social security number of the
person named must also be indicated.

5. TRANSFER TAXES. The Company will pay all transfer taxes, if any,
applicable to the exchange of Old Notes pursuant to the Exchange Offer. If,
however, certificates representing New Notes or Old Notes for principal amounts
not tendered or accepted for exchange are to be delivered to, or are to be
registered or issued in the name of, any person other than the registered Holder
of the Old Notes tendered hereby, or if tendered Old Notes are registered in the
name of any person other than the person signing this Letter of Transmittal, or
if a transfer tax is imposed for any reason other than the exchange of Old Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered Holder or any other person) will be payable
by the tendering Holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with this Letter of Transmittal, the amount
of such transfer taxes will be billed directly to such tendering Holder.

Except as provided in this Instruction 5, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes listed in this Letter of
Transmittal.

6. WAIVER OF CONDITIONS. The Company reserves the absolute right to amend,
waive or modify specified conditions in the Exchange Offer in the case of any
Old Notes tendered.

7. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES. Any tendering Holder
whose Old Notes have been mutilated, lost, stolen or destroyed should contact
the Exchange Agent at the address indicated herein for further instruction.

8. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for
assistance and requests for additional copies of the Prospectus or this Letter
of Transmittal may be directed to the Exchange Agent at the address specified in
the Prospectus. Holders may also contact their broker, dealer, commercial bank,
trust company or other nominee for assistance concerning the Exchange Offer.

9. WITHDRAWAL. Tenders may be withdrawn only pursuant to the limited
withdrawal rights set forth in the Prospectus under the caption "The Exchange
Offer -- Withdrawal of Tenders."

(DO NOT WRITE IN SPACE BELOW)

<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------
CERTIFICATE SURRENDERED OLD NOTES TENDERED OLD NOTES ACCEPTED
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Delivery Prepared by Checked by Date
</TABLE>

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

IMPORTANT TAX INFORMATION

Under federal income tax laws, a Holder whose tendered Old Notes are
accepted for payment is required to provide the Exchange Agent (as payer) with
such Holder's correct TIN on Substitute Form W-9 below or otherwise establish a
basis for exemption from backup withholding. If such Holder is an individual,
the TIN is his social security number. If the Exchange Agent is not provided
with the correct TIN, a $50 penalty may be imposed by the Internal Revenue
Service, and payments made with respect to New Notes purchased pursuant to the
Exchange Offer may be subject to backup withholding.

Certain Holders (including, among others, all corporations and certain
foreign persons) are not subject to these backup withholding and reporting
requirements. Exempt Holders should indicate their exempt status on Substitute
Form W-9. A foreign person may qualify as an exempt recipient by submitting to
the Exchange Agent a properly completed Internal Revenue Service Form W-8,
signed under penalties of perjury, attesting to the Holder's exempt status. A
Form W-8 can be obtained from the Exchange Agent. See the enclosed "Guidelines
for Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional instructions.
<PAGE> 9

If backup withholding applies, the Exchange Agent is required to withhold
31% of any payments made to the Holder or other payee. Backup withholding is not
an additional federal income tax. Rather, the federal income tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained from the Internal Revenue Service.

PURPOSE OF SUBSTITUTE FORM W-9

To prevent backup withholding on payments made with respect to the Exchange
Offer, the Holder is required to provide the Exchange Agent with either: (i) the
Holder's correct TIN by completing the form below, identifying that the TIN
provided on Substitute Form W-9 is correct (or that such Holder is awaiting a
TIN) and that (A) the Holder has not been notified by the Internal Revenue
Service that the Holder is subject to backup withholding as a result of failure
to report all interest or dividends or (B) the Internal Revenue Service has
notified the Holder that the Holder is no longer subject to backup withholding;
or (ii) an adequate basis for exemption.

WHAT NUMBER TO GIVE THE EXCHANGE AGENT

The Holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the registered Holder of
the Old Notes. If the Old Notes are held in more than one name or are held not
in the name of the actual owner, consult the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional guidance on which number to report.
<PAGE> 10

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

PAYER'S NAME:

<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------
SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN
THE BOX AT RIGHT AND CERTIFY BY ---------------------------------
FORM W-9 SIGNING AND DATING BELOW SOCIAL SECURITY NUMBER
OR
EMPLOYER IDENTIFICATION NUMBER
------------------------------------------------------------------------------------------
DEPARTMENT OF THE TREASURY PART 2 -- Certification--Under Penalties of PART 3--
INTERNAL REVENUE SERVICE Perjury, I certify that: Awaiting TIN / /
PAYER'S REQUEST FOR TAXPAYER (1) The number shown on this form is my
IDENTIFICATION NUMBER (TIN) correct Taxpayer Identification Number (or I
am waiting for a number to be issued to
me) and
(2) I am not subject to backup withholding
either because I have not been notified by the
Internal Revenue Service ("IRS") that I am
subject to backup withholding as a result of
failure to report all interest or dividends,
or the IRS has notified me that I am no
longer subject to backup withholding.
------------------------------------------------------------------------------------------

CERTIFICATE INSTRUCTIONS--You must cross out item (2) in Part 2 above if you have been
notified by the IRS that you are subject to backup withholding because of underreporting
interest or dividends on your tax return. However, if after being notified by the IRS
that you were subject to backup withholding you received another notification from the
IRS stating that you are no longer subject to backup withholding, do not cross out item
(2).
SIGNATURE ----------------------------- DATE--------------------
</TABLE>

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

NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO HOLDERS OF NEW NOTES PURSUANT TO THE
EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION
OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.

YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN
PART 3 OF SUBSTITUTE FORM W-9.

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

CERTIFICATE OF AWAITING TAYPAYER IDENTIFICATION NUMBER

I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(b) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number within
60 days, 31 percent of all reportable payments made to me thereafter will be
withheld until I provide a number.

<TABLE>
<S> <C>
SIGNATURE DATE
</TABLE>

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

The Exchange Agent for the Exchange Offer Is:

FLEET NATIONAL BANK

<TABLE>
<S> <C> <C>
By Mail: By Facsimile: By Hand:
Fleet National Bank (860) 986-7908 Fleet National Bank
Corporate Trust Operations Corporate Trust Operations
777 Main Street, Lower Level Confirm by Telephone: 777 Main Street, Lower Level
CTMO 0224 Hartford, Connecticut 06115
Hartford, Connecticut 06115 (860) 986-2910 Attention: Patricia Williams
Attention: Patricia Williams
</TABLE>

<PAGE> 1

EXHIBIT 99.2

NOTICE OF GUARANTEED DELIVERY

FOR
10 1/2% SENIOR NOTES DUE 2006
OF
CALPINE CORPORATION

As set forth in the Prospectus dated June , 1996 (the "Prospectus") of
Calpine Corporation (the "Company") and in the accompanying Letter of
Transmittal and instructions thereto (the "Letter of Transmittal"), this form or
one substantially equivalent hereto must be used to accept the Company's
exchange offer (the "Exchange Offer") to purchase all of its outstanding 10 1/2%
Senior Notes Due 2006 (the "Old Notes") if (i) certificates representing the Old
Notes to be tendered for purchase and payment are not lost but are not
immediately available, (ii) time will not permit the Letter of Transmittal,
certificates representing such Old Notes or other required documents to reach
the Exchange Agent prior to the Expiration Date or (iii) the procedures for
book-entry transfer cannot be completed prior to the Expiration Date. This form
may be delivered by an Eligible Institution by mail or hand delivery or
transmitted, via telegram, telex or facsimile, to the Exchange Agent as set
forth below. All capitalized terms used herein but not defined herein shall have
the meanings ascribed to them in the Prospectus.

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

THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1996 UNLESS THE OFFER IS EXTENDED (THE "EXPIRATION DATE").
TENDERS OF OLD NOTES MAY BE WITHDRAWN AT ANY TIME PRIOR TO 5:00 P.M. ON
THE BUSINESS DAY PRIOR TO THE EXPIRATION DATE.
- --------------------------------------------------------------------------------

<TABLE>
<S> <C> <C>
The Exchange Agent:
Fleet National Bank
By Mail: By Facsimile: By Hand:
Fleet National Bank (860) 986-7908 Fleet National Bank
Corporate Trust Operations Confirm by Telephone: Corporate Trust Operations
777 Main Street, Lower Level (860) 986-2910 777 Main Street, Lower Level
CTMO 0224 Hartford, Connecticut 06115
Hartford, Connecticut 06115 Attention: Patricia Williams
Attention: Patricia Williams
</TABLE>

DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION VIA TELEGRAM,
TELEX OR FACSIMILE, OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID
DELIVERY.

This form is not to be used to guarantee signatures. If a signature on the
Letter of Transmittal is required to be guaranteed by an "Eligible Institution"
under the instructions thereto, such signature guarantee must appear in the
applicable space provided in the signature box on the Letter of Transmittal.

LADIES AND GENTLEMEN:

The undersigned hereby tender(s) to the Company, upon the terms and subject
to the conditions set forth in the Exchange Offer and the Letter of Transmittal,
receipt of which is hereby acknowledged, the aggregate principal amount of Old
Notes set forth below pursuant to the guaranteed delivery procedures set forth
in the Prospectus under the caption "The Exchange Offer -- Guaranteed Delivery
Procedures".

The undersigned understands that tenders of Old Notes will be accepted only
in principal amounts equal to $1,000 or integral multiples thereof. The
undersigned understands that tenders of Old Notes pursuant to the Exchange Offer
may not be withdrawn after 5:00 p.m., New York City time, on the business day
prior to the Expiration Date. Tenders of Old Notes may also be withdrawn if the
Exchange Offer is terminated without any such Old Notes being purchased
thereunder or as otherwise provided in the Prospectus under the caption "The
Exchange Offer -- Withdrawal of Tenders".

All authority herein conferred or agreed to be conferred by this Notice of
Guaranteed Delivery shall survive the death or incapacity of the undersigned,
and every obligation of the undersigned under this Notice of Guaranteed Delivery
shall be binding upon the heirs, personal representatives, executors,
administrators, successors, assigns, trustees in bankruptcy and other legal
representatives of the undersigned.
<PAGE> 2

PLEASE COMPLETE AND SIGN

<TABLE>
<S> <C>
Signature(s) of Registered Owner(s) or Name(s) of Registered Holder(s):
Authorized ------------------------------------------------
Signatory: ------------------------------------------------
- ------------------------------------------------
- ------------------------------------------------ Address:
- ------------------------------------------------ ------------------------------------------------
- ------------------------------------------------ ------------------------------------------------
Principal Amount of Old Notes Tendered:
- ------------------------------------------------ Area Code and Telephone No.:
- ------------------------------------------------
Certificate No(s). of Old Notes (if available): If Old Notes will be delivered by book-entry
- ------------------------------------------------ transfer at The Depository Trust Company, insert
- ------------------------------------------------ Depository Account No.:
Date:
- ------------------------------------------------
</TABLE>

This Notice of Guaranteed Delivery must be signed by the registered
holder(s) of Old Notes exactly as its (their) name(s) appear on certificates for
Old Notes or on a security position listing as the owner of Old Notes, or by
person(s) authorized to become registered holder(s) by endorsements and
documents transmitted with this Notice of Guaranteed Delivery. If signature is
by a trustee, executor, administrator, guardian, attorney-in-fact, officer or
other person acting in a fiduciary or representative capacity, such person must
provide the following information.

Please print name(s) and address(es)

Name(s):
- --------------------------------------------------------------------------------

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

Capacity:
- --------------------------------------------------------------------------------

Address(es):
- --------------------------------------------------------------------------------

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

Do not send Old Notes with this form. Old Notes should be sent to the Exchange
Agent together with a properly completed and duly executed Letter of
Transmittal.

The undersigned, a member firm of a registered national securities exchange
or of the National Association of Securities Dealers, Inc. or a commercial bank
or trust company having an office or a correspondent in the United States,
hereby (a) represents that each holder of Old Notes on whose behalf this tender
is being made "own(s)" the Old Notes covered hereby within the meaning of Rule
14e-4 under the Securities Exchange Act of 1934, as amended, (b) represents that
such tender of Old Notes complies with such Rule 14e-4, and (c) guarantees that,
within five New York Stock Exchange trading days from the date of this Notice of
Guaranteed Delivery, a properly completed and duly executed Letter of
Transmittal (or a facsimile thereof), together with certificates representing
the Old Notes covered hereby in proper form for transfer (or confirmation of the
book-entry transfer of such Old Notes into the Exchange Agent's account at The
Depository Trust Company, pursuant to the procedure for book-entry transfer set
forth in the Prospectus) and required documents will be deposited by the
undersigned with the Exchange Agent.

The undersigned acknowledges that it must deliver the Letter of Transmittal
and Old Notes tendered hereby to the Exchange Agent within the time period set
forth above and that failure to do so could result in financial loss to the
undersigned.

<TABLE>
<S> <C>
Name of Firm: -----------------------------------------------
----------------------------------------- Authorized Signature
Address: Name:
- ----------------------------------------------- -----------------------------------------------
Title:
- ----------------------------------------------- -----------------------------------------------
Date:
Area Code and Telephone No.: -----------------------------------------------
- ------------------------
</TABLE>