CALPINE CORP
10-Q, 1997-08-14
COGENERATION SERVICES & SMALL POWER PRODUCERS
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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                              ---------------------


                                    FORM 10-Q



[ X ]    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities 
         Exchange Act of 1934 for the quarter ended  June 30, 1997


[        ] Transition  Report  Pursuant to Section 13 or 15(d) of the Securities
         Exchange    Act   of   1934   for   the    transition    period    from
         ______________________ to ______________________



                        Commission File Number: 033-73160


                               CALPINE CORPORATION

                            (A Delaware Corporation)

                  I.R.S. Employer Identification No. 77-0212977



                           50 West San Fernando Street
                           San Jose, California 95113
                            Telephone: (408) 995-5115




Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                        Yes [ X ]        No   [      ]


Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date:

$0.001 par value Common Stock   19,939,233 shares outstanding on August 12, 1997



                                      - 1 -

<PAGE>



                      CALPINE CORPORATION AND SUBSIDIARIES
                               Report on Form 10-Q
                       For the Quarter Ended June 30, 1997

                                      INDEX

PART I.           FINANCIAL INFORMATION                                 Page No.

                  ITEM 1.  Financial Statements

                  Condensed Consolidated Balance Sheets
                  June 30, 1997 and December 31, 1996..........................3

                  Condensed Consolidated Statements of Operations
                  Three and Six Months Ended June 30, 1997 and 1996............4

                  Condensed Consolidated Statements of Cash Flows
                  Six Months Ended June 30, 1997 and 1996......................5

                  Notes to Condensed Consolidated Financial Statements.........6

                  ITEM 2.  Management's Discussion and Analysis of Financial
                  Condition and Results of Operations.........................13

PART II.          OTHER INFORMATION

                  ITEM 1.  Legal Proceedings..................................20

                  ITEM 2.  Change in Securities...............................20

                  ITEM 3.  Defaults Upon Senior Securities....................20

                  ITEM 4.  Submission of Matters to a Vote of Security 
                           Holders............................................20

                  ITEM 5.  Other Information..................................21

                  ITEM 6.  Exhibits and Reports on Form 8-K...................21


Signatures....................................................................29

Exhibit Index.................................................................30




                                      - 2 -

<PAGE>



                          PART I. FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

                      CALPINE CORPORATION AND SUBSIDIARIES

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                       June 30, 1997 and December 31, 1996
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                 June 30,   December 31,
                                                                    1997        1996
                                                                ----------   ----------
                                 ASSETS                        (unaudited)
<S>                                                            <C>          <C>    
Current assets:
   Cash and cash equivalents ................................   $   23,436   $  100,010
   Accounts receivable from related parties .................        1,718        2,826
   Accounts receivable from others ..........................       49,623       39,962
   Notes receivable from related parties, current portion ...       15,564         --
   Collateral securities, current portion ...................        6,056        5,470
   Prepaid operating lease ..................................       13,652       12,668
   Other current assets .....................................        5,617       10,251
                                                                ----------   ----------
       Total current assets .................................      115,666      171,187
Property, plant and equipment, net ..........................      691,444      650,053
Investments in power projects ...............................       78,451       13,937
Collateral securities, net of current portion ...............       85,453       89,806
Notes receivable from related parties, net of current portion      150,902       18,182
Notes receivable from Coperlasa .............................       16,353       17,961
Restricted cash .............................................       25,735       55,219
Other assets ................................................       17,064       13,870
                                                                ----------   ----------
       Total assets .........................................   $1,181,068   $1,030,215
                                                                ==========   ==========
                  LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Current portion of non-recourse project financing ........   $  156,379   $   30,627
   Notes payable and short-term borrowings ..................        7,135        6,865
   Accounts payable .........................................       11,852       18,363
   Accrued payroll and related expenses .....................        3,393        3,912
   Accrued interest payable .................................        7,115        7,332
   Other accrued expenses ...................................        6,972        7,870
                                                                ----------   ----------
       Total current liabilities ............................      192,846       74,969
Long-term line of credit ....................................       14,300         --
Non-recourse project financing, net of current portion ......      264,480      278,640
Senior Notes ................................................      285,000      285,000
Deferred income taxes, net ..................................      129,932      100,385
Deferred lease incentive ....................................       76,737       78,521
Other liabilities ...........................................        8,265        9,573
                                                                ----------   ----------
       Total liabilities ....................................      971,560      827,088
                                                                ----------   ----------

Stockholders' equity
   Common stock .............................................           20           20
   Additional paid-in capital ...............................      166,433      165,412
   Retained earnings ........................................       43,055       37,695
       Total stockholders' equity ...........................      209,508      203,127
                                                                ----------   ----------
       Total liabilities and stockholders' equity ...........   $1,181,068   $1,030,215
                                                                ==========   ==========
</TABLE>

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




                                      - 3 -

<PAGE>



                      CALPINE CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
            For the Three and Six Months Ended June 30, 1997 and 1996
                    (in thousands, except per share amounts)
                                   (unaudited)
<TABLE>
<CAPTION>

                                                    Three Months Ended        Six Months Ended
                                                          June 30,                June 30,
                                                  ----------------------    ----------------------
                                                     1997         1996        1997         1996
                                                  ---------    ---------    ---------    ---------
<S>                                               <C>          <C>          <C>         <C>    
Revenue:
   Electricity and steam sales ................   $  62,639    $  46,255    $  96,326    $  72,030
   Service contract revenue ...................       1,715        2,848        3,529        5,434
   Income from unconsolidated investments in
     power projects ...........................       2,131          298        4,164        1,713
   Interest income on loans to power projects .       1,259          920        2,956        2,817
                                                  ---------    ---------    ---------    ---------
       Total revenue ..........................      67,744       50,321      106,975       81,994
                                                  ---------    ---------    ---------    ---------
Cost of revenue:
   Plant operating expenses, depreciation,
      operating lease expense and production
      royalties................................      35,537       27,363       64,276       46,835
   Service contract expenses ..................       1,669        2,627        3,519        4,484
                                                  ---------    ---------    ---------    ---------
       Total cost of revenue ..................      37,206       29,990       67,795       51,319
                                                  ---------    ---------    ---------    ---------

Gross profit ..................................      30,538       20,331       39,180       30,675

Project development expenses ..................       1,786          894        3,947        1,410
General and administrative expenses ...........       4,373        3,234        8,584        5,874
                                                  ---------    ---------    ---------    ---------
       Income from operations .................      24,379       16,203       26,649       23,391

Other expense (income):
   Interest expense ...........................      13,168       10,446       26,145       18,665
   Other income, net ..........................      (4,292)      (2,244)      (7,893)      (2,777)
                                                  ---------    ---------    ---------    ---------
       Income before provision for income taxes      15,503        8,001        8,397        7,503
Provision for income taxes ....................       6,103        3,284        3,037        3,080
                                                  ---------    ---------    ---------    ---------
       Net income .............................   $   9,400    $   4,717    $   5,360    $   4,423
                                                  =========    =========    =========    =========
Primary earnings per share:
   Weighted average shares outstanding ........      20,998       13,362       20,425       12,007
                                                  =========    =========    =========    =========

   Earnings per share .........................   $    0.45    $    0.35    $    0.26    $    0.37
                                                  =========    =========    =========    =========
</TABLE>



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



                                      - 4 -

<PAGE>



                      CALPlNE CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                 For the Six Months Ended June 30, 1997 and 1996
                                 (in thousands)
                                   (unaudited)


<TABLE>
<CAPTION>
                                                                                      Six Months Ended
                                                                                          June 30,
                                                                                   ----------------------
                                                                                     1997          1996
                                                                                   ---------    ---------

<S>                                                                                <C>          <C>      
Net cash provided by operating activities ......................................   $  16,800    $   5,035
                                                                                   ---------    ---------

Cash flows from investing activities:
   Acquisition of property, plant and equipment ................................     (57,616)      (8,061)
   Acquisition of Texas Cogeneration Company ...................................     (36,411)        --
   Purchase of loans for Texas City and Clear Lake Power Plants ................    (155,622)        --
   Repayment of loans by Texas City and Clear Lake Power Plants ................       5,737         --
   Investment in King City, net of cash on hand ................................        --         (4,877)
   Investment in King City collateral securities ...............................        --        (98,414)
   Acquisition of Calpine Gas Company ..........................................      (7,621)        --
   Investments in power projects and capitalized costs .........................        (416)      (2,983)
   Loans to Coperlasa ..........................................................        --        (12,104)
   Maturities of collateral securities .........................................       5,350         --
   Decrease in restricted cash .................................................      29,484        1,150
   Other, net ..................................................................      (3,382)        (762)
                                                                                   ---------    ---------
         Net cash used in investing activities .................................    (220,497)    (126,051)
                                                                                   ---------    ---------

Cash flows from financing activities:
   Proceeds from issuance of Senior Notes Due 2006 .............................        --        180,000
   Borrowings from line of credit ..............................................      14,300       33,800
   Repayments of line of credit ................................................        --        (53,651)
   Borrowings from bank ........................................................        --         45,000
   Repayments to bank ..........................................................        --        (46,177)
   Borrowings of non-recourse project financing ................................     128,300         --
   Repayments of non-recourse project financing ................................     (16,247)     (66,600)
   Proceeds from issuance of preferred stock ...................................        --         50,000
   Proceeds from issuance of common stock ......................................         954         --
   Financing costs .............................................................        (251)      (4,763)

   Other, net ..................................................................          67         --
                                                                                   ---------    ---------
         Net cash provided by financing activities .............................     127,123      137,609
                                                                                   ---------    ---------

Net increase (decrease) in cash and cash equivalents ...........................     (76,574)      16,593
Cash and cash equivalents, beginning of period .................................     100,010       21,810
                                                                                   ---------    ---------
Cash and cash equivalents, end of period .......................................   $  23,436    $  38,403
                                                                                   =========    =========

Supplementary information -- cash paid during the period for:
   Interest ....................................................................   $  27,039    $  16,517
   Income taxes ................................................................   $     435          955

</TABLE>
         The accompanying notes are an integral part of these condensed
                       consolidated financial statements.


                                      - 5 -

<PAGE>


                      CALPINE CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 1997


1.       Organization and Operation of the Company

Calpine  Corporation  ("Calpine"),  a  Delaware  corporation,  and  subsidiaries
(collectively,  the  "Company")  are  engaged in the  development,  acquisition,
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 and  operates  natural  gas- fired  cogeneration
facilities, geothermal steam fields and geothermal power generation facilities.

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, 1996. The
results for interim  periods are not  necessarily  indicative of the results for
the entire year.

Earnings  Per Share --  Earnings  per  share is  calculated  using the  weighted
average  number  of  common  shares  and  common   equivalent   shares,   unless
antidilutive, using the treasury stock method for outstanding stock options. For
1996,  net income per share also gives effect to common  equivalent  shares from
convertible   preferred   shares  from  the  original   date  of  issuance  that
automatically  converted  to common  shares  upon  completion  of the  Company's
initial public offering in September 1996 (using the if-converted method).

In February  1997, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement  of Financial  Accounting  Standards  ("SFAS")  No. 128,  Earnings Per
Share,   which  simplifies  the  standards  for  computing  earnings  per  share
previously  found in Accounting  Principles  Board Opinion ("APBO") No. 15. SFAS
No.  128  replaces  the  presentation  of  primary  earnings  per  share  with a
presentation of basic earnings per share, which excludes dilution.  SFAS No. 128
also requires dual  presentation of basic and diluted  earnings per share on the
face of the income  statement for all entities with complex  capital  structures
and requires a reconciliation.  Diluted earnings per share is computed similarly
to fully diluted  earnings per share  pursuant to APBO No. 15. SFAS No. 128 must
be adopted for financial statements issued for periods ending after December 15,
1997, including interim periods; earlier application is not permitted.  SFAS No.
128 requires restatement of all prior-period  earnings per share data presented.
For the three and six months ended June 30, 1997, basic and diluted earnings per
share would not be materially different than the earnings per share presented in
the accompanying condensed consolidated statement of operations.

Capitalized  interest -- The Company capitalizes interest on projects during the
construction  period.  For the three and six  months  ended June 30,  1997,  the
Company  capitalized  $723,000 and $1.3  million,  respectively,  of interest in
connection  with the  construction  of the Pasadena Power Plant. No interest was
capitalized in 1996.

Derivative Financial  Instruments -- The Company engages in activities to manage
risks  associated with changes in interest  rates.  The Company has entered into
swaps to reduce  exposure to  interest  rate  fluctuations  in  connection  with
certain  debt  commitments.  The  instruments'  cash flows  mirror  those of the
underlying  exposures.  Unrealized  gains and losses relating to the instruments
are being  deferred  over the lives of the  contracts.  The premiums paid on the
instruments, as measured at inception, are being amortized over their respective
lives as components of interest  expense.  Any gains or losses realized upon the
early  termination  of these  instruments  are deferred and recognized in income
over the remaining life of the underlying exposure.

                                      - 6 -

<PAGE>


                      CALPINE CORPORATION AND SUBSIDIARIES

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                                  June 30, 1997


At June 30,  1997,  the  Company had $151.7  million of  interest  rate swaps on
non-recourse  project  financing  and $182.0  million of treasury rate locks and
enhanced  forwards on senior  notes  issued by the Company in July 1997.  During
July 1997, the Company  extinguished  non-recourse  project financing related to
$64.2  million of interest rate hedges and  terminated  one swap related to $9.2
million of hedged debt.

Reclassifications -- Prior year amounts in the consolidated  condensed financial
statements  have  been  reclassified  where  necessary  to  conform  to the 1997
presentation.

3.       Accounts Receivable and Notes Receivable

Accounts  receivable  from related  parties as of June 30, 1997 and December 31,
1996 are comprised of the following (in thousands):

                                       June 30,   December 31,
                                          1997       1996
                                        ------      ------
                                       (unaudited)
   O.L.S. Energy-Agnews, Inc. .......   $  833      $  687
   Geothermal Energy Partners, Ltd. .      191         350
   Sumas Cogeneration Company, L.P. .      351         590
   Texas Cogeneration Company ("TCC")       29          --
   Electrowatt Ltd. and subsidiaries       314       1,199
                                        ------      ------
                                        $1,718      $2,826
                                        ======      ======


Notes receivable from related parties as of June 30, 1997 and December 31, 1996
are comprised of the following (in thousands):

                                         June 30,  December 31,
                                           1997       1996
                                        ---------   --------
                                       (unaudited)
    Darrel Jones .....................   $ 18,781   $ 18,182
    Cogenron, Inc. (subsidiary of TCC)     47,688       --
   Clear Lake Cogeneration, L.P. .....
      (subsidiary of TCC) ............     99,997       --
                                        ---------   --------
                                         $166,466   $ 18,182
                                        =========   ========

Darrel Jones is the sole shareholder of Sumas Energy, Inc., the Company's
partner in Sumas Cogeneration Company, L.P. (see Note 4). See Note 5 for 
information regarding TCC.

                                      - 7 -

<PAGE>


                      CALPINE CORPORATION AND SUBSIDIARIES

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                                  June 30, 1997


 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
six months  ended June 30,  1997 and 1996  related  to these  investments  is as
follows (in thousands):
<TABLE>
<CAPTION>

                                                 1997                                                  1996
                      ----------------------------------------------------------    ------------------------------------------
                           Sumas         O.L.S.      Geothermal                          Sumas         O.L.S.      Geothermal
                       Cogeneration     Energy-        Energy          Texas         Cogeneration      Energy-       Energy
                         Company,       Agnews,      Partners,     Cogeneration        Company,        Agnews,     Partners,
                           L.P.          Inc.           Ltd.          Company            L.P.           Inc.          Ltd.
                      --------------   ---------   -------------   -------------    --------------   ----------  -------------
<S>                         <C>         <C>           <C>            <C>               <C>            <C>          <C>    
   Revenue ..............   $19,354     $ 6,020       $11,584        $ 5,786           $21,561        $ 4,604      $ 9,576
   Operating expenses ...     7,325       5,654         4,982          4,855            12,752          4,349        6,219
                            -------     -------       -------        -------           -------        -------      -------
   Income (loss) from
     operations .........    12,029         366         6,602            931             8,809            255        3,357

   Other expenses, net ..     5,167       1,170         1,784            236             5,098          1,040        2,444
                            -------     -------       -------        -------           -------        -------      -------

       Net income (loss)    $ 6,862     $  (804)      $ 4,818        $   695           $ 3,711        $  (785)      $  913
                            =======     =======       =======        =======           =======        =======      =======

   Company's share of net                                                     
     income (loss) ......   $ 3,906     $  (124)      $   224        $   158           $ 1,855        $  (179)      $   37
                            =======     =======       =======        =======           =======        =======      =======
</TABLE>

 5.      Texas Cogeneration Company Transaction

 On June 23, 1997, Calpine completed the acquisition of a 50% equity interest in
the Texas City  cogeneration  facility  (the "Texas  City Power  Plant") and the
Clear Lake  cogeneration  facility  (the "Clear  Lake Power  Plant") for a total
purchase  price of $35.4  million,  subject to final  adjustments.  The  Company
acquired its 50% interest in these plants through the  acquisition of 50% of the
capital stock of Enron Dominion  Cogen Corp.  ("EDCC") from Enron Power Corp., a
wholly owned subsidiary of Enron Corp. ("Enron").  EDCC was subsequently renamed
Texas Cogeneration Company ("TCC"). The other 50% shareholder interest in TCC is
owned by Dominion Cogen, Inc. In addition to the purchase of 50% of the stock of
TCC,  Calpine,  through its wholly owned  subsidiary,  Calpine  Finance  Company
("CFC"),  purchased from the existing  lenders the $155.6 million of outstanding
non-recourse  project  debt of the Texas City Power Plant  (approximately  $53.0
million)  and the Clear Lake Power Plant  (approximately  $102.6  million).  The
acquisition of the capital stock of TCC and the purchase of the outstanding debt
from the existing  lenders were financed with  approximately  $125.0  million of
non-recourse  debt  provided  by The  Bank  of Nova  Scotia,  $14.3  million  of
borrowings  from the  revolving  line of  credit,  and $55.8  million  of equity
provided by the Company (see Notes 7 and 8 for more  information  regarding  the
revolving line of credit and the $125.0 million of non-recourse debt).

 The Company  accounts for its investment in TCC under the equity method because
control of TCC is deemed to be shared with Dominion  Cogen,  Inc. The Texas City
and Clear  Lake  Power  Plants  are  operated  by the  Company  under a one-year
contract with automatic renewal provisions.

 Texas City Power Plant -- The Texas City Power Plant is a 450 megawatt  natural
gas-fired combined-cycle cogeneration facility located in Texas City, Texas. The
Texas City Power Plant commenced commercial operation in June 1987.

 Electricity  generated by the Texas City Power Plant is sold under two separate
long-term agreements to (i) Texas Utilities Generating Company ("TUEC") under an
original  12-year power sales agreement  terminating in June 1999 and (ii) Union
Carbide  Company  ("UCC")  under  an  original  12-year  power  sales  agreement
terminating in June 1999.  Each power sales  agreement  contains  provisions for
capacity and energy. The TUEC power sales agreement provides for a firm capacity
payment for 410  megawatts.  The UCC power sales  agreement  provides for a firm
capacity payment for 20 megawatts.

                                      - 8 -

<PAGE>


                      CALPINE CORPORATION AND SUBSIDIARIES

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                                  June 30, 1997


 Natural gas requirements  for the Texas City Power Plant are allocated  between
UCC, DEI Texas,  Inc.  ("DEI"),  an affiliate of Dominion  Cogen Inc., and Enron
Capital and Trading Corporation  ("ECT") pursuant to a contractual  arrangement.
UCC and DEI currently provide  approximately 25% and 56%,  respectively,  of the
fuel  requirements  of the Texas City Power Plant.  The three fuel contracts are
effective through June 1999. Under the fuel contracts,  approximately 19% of the
total fuel requirements of the Texas City Power Plant is supplied at spot market
prices. The remainder is purchased at fixed rates which are currently above spot
market prices.

 Clear Lake Power Plant -- The Clear Lake Power Plant is a 377 megawatt  natural
gas/hydrogen-fired  combined-cycle  cogeneration  facility  located in Pasadena,
Texas.  The Clear Lake Power Plant  commenced  commercial  operation in December
1984.

 Electricity  generated  by the  Clear  Lake  Power  Plant is sold  under  three
separate  long-term  agreements  to (i) Texas New Mexico Power  Company  ("TNP")
under an  original  20-year  power sales  agreement  terminating  in 2004,  (ii)
Houston Light & Power  Company  ("HL&P")  under an original  10-year power sales
agreement terminating in 2005, and (ii) Hoescht Celanese Chemical Group ("HCCG")
under an original 10-year power sales agreement  terminating in 2004. Each power
sales agreement contains provisions for capacity and energy payments.

 The  TNP  power  sales  agreement  provides  for a  firm  capacity  payment  of
production between 200 and 250 megawatts based on 98% of HL&P's tariff under its
TNP contract.  The HL&P power sales agreement provides for firm capacity payment
for 50 megawatts  for the term of the  agreement,  subject to  adjustment  under
certain specified  conditions.  The HCCG power sales agreement provides for firm
capacity payment for 35 megawatts for the term of the agreement.  The TNP energy
price is based on 98% of HL&P's tariff under its TNP contract. HL&P's and HCCG's
energy payments are based on HL&P's weighted average cost of gas, or contractual
heat rates and operations and maintenance adder.

 The natural gas for the Clear Lake Power Plant is purchased primarily from TCC,
which  receives its fuel from ECT on a tiered price basis  consisting of a fixed
priced  tier  escalating  at 5% annually  and two  index-priced  tiers.  A small
portion of the natural gas  requirements  is purchased from ECT at index prices.
In  addition,  the  facility  burns  hydrogen  provided  by HCCG,  amounting  to
approximately 5% of the Clear Lake Power Plant's total fuel requirements.

 6.      Calpine Gas Company Transaction

On January 31, 1997,  the Company  acquired  the  outstanding  capital  stock of
Montis Niger, Inc., a natural gas production  company,  and certain gas reserves
from Radnor Power, a wholly-owned  subsidiary of LFC Financial  Corp.,  for $7.1
million.  In addition,  the Company paid  $824,000 for certain  working  capital
items.  The  Company's  allocation  of the  purchase  price is  subject to final
adjustments.  Montis Niger,  subsequently  renamed to Calpine Gas Company,  owns
proven natural gas reserves and an 80-mile pipeline system which provides gas to
the Company's Greenleaf 1 and 2 Power Plants in northern California. The Company
paid  $7.6  million  in cash for a portion  of the  purchase  price and  working
capital  items,  and  recorded a $600,000  liability  for the  remainder  of the
purchase price due upon completion of certain drilling obligations.

 7.      Revolving Credit Facility

 At June 30, 1997,  the Company had a $50.0 million  credit  facility  available
with a consortium of commercial  lending  institutions which include The Bank of
Nova Scotia,  International Nederlanden U.S. Capital Corporation,  Sumitomo Bank
of  California  and Canadian  Imperial Bank of Commerce.  At June 30, 1997,  the
Company had $14.3  million of  borrowings  and $2.7 million of letters of credit
outstanding  under the credit facility.  Borrowings bear interest at The Bank of
Nova  Scotia's base rate plus an  applicable  margin or at the London  Interbank
Offered Rate ("LIBOR")

                                      - 9 -

<PAGE>


                      CALPINE CORPORATION AND SUBSIDIARIES

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                                  June 30, 1997


plus an applicable  margin  (approximately  9.4% at June 30, 1997).  Interest is
paid on the last day of each interest period for such loans,  but not less often
than quarterly. The credit agreement expires in September 1999.

 On July 1, 1997,  the  Company  had an  additional  $6.0  million of letters of
credit  outstanding  related to the purchase of firm capacity and energy between
HL&P and the Clear Lake Power  Plant.  On July 8, 1997,  the Company  repaid the
$14.3 million of borrowings  with proceeds from the 8-3/4% Senior Notes Due 2007
(see Note 9).

 8.      Non-Recourse Project Financing

Note  Payable to Bank -- On June 23,  1997,  the Company  entered  into a $125.0
million  non-recourse  financing  with The Bank of Nova Scotia,  the proceeds of
which were  utilized  for the  acquisition  of the 50%  interest  in TCC and the
purchase from the lenders of $155.6 million of outstanding  non-recourse project
debt (see Note 5). The $125.0 million non-recourse financing matures on June 22,
1998 and is  expected  to be repaid  prior to  maturity  with the  proceeds of a
planned refinancing of the $155.6 million non-recourse project debt. On June 30,
1997,  $119.3 million of borrowings were outstanding  which bear interest at The
Bank of Nova Scotia's  base rate plus an  applicable  margin or at LIBOR plus an
applicable  margin  (approximately  7.0% at June 30,  1997).  In July 1997,  the
Company utilized  existing swap arrangements to minimize the impact of potential
changes in interest  rates on the project  debt.  The  effective  interest  rate
including the effect of the existing swap arrangement was approximately 8.4%.

 Senior-Term  and Junior Term Loans -- The Company  entered into the Senior-Term
and Junior Term Loans in connection  with the Company's  acquisition  of Calpine
Geysers  Company in 1993.  On June 30, 1997,  $102.7  million of such loans were
outstanding. On July 8, 1997, the Company repaid all Senior-Term and Junior-Term
Loans  before their  maturity  date from the proceeds of the 8-3/4% Senior Notes
Due 2007  (see  Note 9).  In  connection  with  this  transaction,  the  Company
terminated one swap transaction and retained one swap  transaction.  The Company
had entered  into these swap  transactions  to minimize the impact of changes in
interest  rates on a portion of the Senior- Term loans and had an effective rate
of 9.9% on June 30, 1997.

 9.      Senior Notes Due 2007

 On July 8, 1997, the Company issued $200.0 million  aggregate  principal amount
of 8-3/4% Senior Notes Due 2007. The net proceeds of $195.0 million were used as
follows:  (i) $102.7 million to repay non-recourse  project financing related to
Calpine  Geysers  Company,  (ii) $6.4 million to repay a note payable to Natomas
Energy Company related to the purchase of Thermal Power Company which matures in
September 1997,  (iii) $14.3 million to repay  borrowings under The Bank of Nova
Scotia Revolving Credit Facility, (iv) $728,000 to repay a note payable to Santa
Fe Geothermal,  Inc. which matures in December 1997, and (v) approximately $70.9
million for general corporate purposes. Transaction costs incurred in connection
with the debt offering were recorded as a deferred charge and are amortized over
the  ten-year  life of the 8-3/4%  Senior  Notes Due 2007  using  the  effective
interest rate method.

 In May  and  June  1997,  the  Company  executed  five  interest  rate  hedging
transactions  related  to debt with a  notational  value of $182.0  million  and
designed to eliminate interest rate risk for the period from May 1997 to July 8,
1997 when the 8-3/4% Senior  Notes Due 2007 were  priced.  These  interest  rate
hedging  transactions  were  designated  as a  hedge  of  the  anticipated  bond
offering,  and the  resulting  $3.0  million cost  resulting  from the hedges is
amortized  over the life of the bond.  The  effective  interest  rate  after the
hedging transactions and the amortization of deferred costs is 9.0%.

 The 8-3/4% Senior Notes Due 2007 will mature on July 15, 2007.  The Company has
no sinking fund or mandatory  redemption  obligations with respect to the 8-3/4%
Senior Notes Due 2007. Interest is payable  semi-annually on January 15 and July
15 of each  year  while  the 8-3/4%  Senior  Notes  Due  2007  are  outstanding,
commencing on January 15, 1998.

                                     - 10 -

<PAGE>


                      CALPINE CORPORATION AND SUBSIDIARIES

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                                  June 30, 1997



 10.     Preferred Share Purchase Rights

 On June 5, 1997, the Board of Directors  adopted a  Stockholders  Right Plan to
strengthen the Board's  ability to protect  Calpine's  stockholders.  The Rights
Plan is designed to protect  against abusive or coercive  takeover  tactics that
are not in the best interests of Calpine and its stockholders.  To implement the
Rights Plan, the Board of Directors  declared a dividend of one preferred  share
purchase right (a "Right") for each outstanding share of Common Stock, par value
$0.001 per share,  held on record as of June 18, 1997.  On June 30, 1997,  there
were 19,905,233 Rights outstanding. Each Right initially represents a contingent
right to purchase, under certain circumstances, one one-thousandth of a share (a
"Unit") of Series A Junior  Participating  Preferred Stock, par value $0.001 per
share (the  "Preferred  Stock"),  of the  Company at a price of $80.00 per Unit,
subject to adjustment.  The Rights become  exercisable  and trade  independently
from Calpine's Common Stock upon the public announcement of the acquisition by a
person or group of 15% or more of the Company's  Common Stock, or ten days after
commencement  of a tender or exchange offer that would result in the acquisition
of 15% or more of the  Company's  Common  Stock.  Each Unit of  Preferred  Stock
purchased  upon  exercise of the Rights will be entitled to a dividend  equal to
any dividend  declared per share of Common Stock and will have one vote,  voting
together  with the  Common  Stock.  In the  event of  liquidation,  each unit of
Preferred Stock will be entitled to any payment made per share of Common Stock.

 If Calpine is acquired in a merger or other  business  combination  transaction
after a person or group has acquired 15% or more of the Company's  Common Stock,
each Right will entitle its holder to purchase, at the Right's exercise price, a
number of the acquiring  company's  common shares having a market value of twice
such exercise price.  In addition,  if a person or group acquires 15% or more of
Calpine's  Common  Stock,  each Right will  entitle  its holder  (other than the
acquiring person or group) to purchase,  at the Right's exercise price, a number
of  fractional  shares of  Calpine's  Preferred  Stock or shares of Common Stock
having a market value of twice such exercise price.

 The Rights expire June 18, 2007 unless  redeemed  earlier by Calpine's Board of
Directors. The rights can be redeemed by the Board at a price of $0.01 per Right
at any time before the Rights become exercisable, and thereafter only in limited
circumstances.

 11.     Contingencies

 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.  Since the proposed  restructure  results in  widespread  impact on the
market structure and requires  participation and oversight of the Federal Energy
Regulatory  Commission  ("FERC"),  the CPUC  has  sought  to build a  California
consensus  involving  the  legislature,   the  Governor,  public  and  municipal
utilities  and  customers.  The  consensus has resulted in filings with the FERC
which  should  permit  both  the  CPUC and  FERC to  collectively  proceed  with
implementation of the new competitive  market structure.  On September 23, 1996,
state legislation was passed,  AB 1890 (the "Bill"),  which codified much of the
CPUC  decision  and  directed  the  CPUC  to  proceed  with   implementation  of
restructure no later than January 1, 1998. The Bill  accelerated  the transition
period to a fully  competitive  market  from five  years to four  years with all
consumers  participating  by the year 2002. The Bill provided for an electricity
rate freeze for the period of transition and mandated  through  issuance of rate
reduction  bonds a 10% rate  reduction  for  small  commercial  and  residential
customers  effective  January 1, 1998. The proposed  restructuring  provides for
phased-in customer choice (direct access),  development of a  non-discriminatory
market structure,  full recovery of utility stranded costs, sanctity of existing
contracts,  and continuation of existing public policy programs  including funds
for enhancement of in-state renewable energy  technologies during the transition
period.  In May 1997, the CPUC ruled that all utility  customers will be able to
choose their electricity  supplier beginning January 1, 1998. 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

                                     - 11 -

<PAGE>


                      CALPINE CORPORATION AND SUBSIDIARIES

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                                  June 30, 1997


existing  business or results of operations.  The Company believes that any such
restructuring  would not have a material  effect on its power  sales  agreements
and, accordingly,  believes that its existing business and results of operations
would not be materially  adversely affected,  although there can be no assurance
in this regard.

 Litigation  -- The  Company is  involved  in various  claims and legal  actions
arising out of the normal  course of business.  Management  believes  that these
matters will not have a material impact on the financial  position or results of
operations of the Company, although there can be no assurance in this regard.

                                     - 12 -

<PAGE>



 ITEM 2.          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                  AND RESULTS OF OPERATIONS


 Except for  historical  financial  information  contained  herein,  the matters
discussed   in  this   quarterly   report  on  Form   10-Q  may  be   considered
"forward-looking" statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended and subject to the safe harbor created by the  Securities  Litigation
Reform Act of 1995. Such statements include  declarations  regarding the intent,
belief or current  expectations of the Company and its  management.  Prospective
investors  are  cautioned  that  any  such  forward-looking  statements  are not
guarantees   of  future   performance   and   involve  a  number  of  risks  and
uncertainties;  actual results could differ  materially  from those indicated by
such  forward-looking  statements.  Among the important factors that could cause
actual results to differ materially from those indicated by such forward-looking
statements are: (i) that the  information is of a preliminary  nature and may be
subject to further  adjustment,  (ii) the possible  unavailability of financing,
(iii) risks  related to the  development,  acquisition  and  operation  of power
plants,  (iv) the impact of avoided cost pricing and energy price  fluctuations,
(v) the  impact  of  curtailment,  (vi) the  seasonal  nature  of the  Company's
business,  (vii)  start-up  risks,  (viii)  general  operating  risks,  (ix) the
dependence  on  third  parties,   (x)  risks   associated   with   international
investments,  (xi) risks  associated  with the power marketing  business,  (xii)
changes in government regulation,  (xiii) the availability of natural gas, (xiv)
the effects of  competition,  (xv) the  dependence on senior  management,  (xvi)
volatility  in the  Company's  stock  price,  (xvii)  fluctuations  in quarterly
results and seasonality, and (xviii) other risks identified from time to time in
the Company's reports and registration  statements filed with the Securities and
Exchange Commission.


 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 17 power
generation  facilities  and steam fields  having an aggregate  capacity of 1,874
megawatts.  In addition,  Calpine has a 240 megawatt  gas-fired power generation
facility under construction in Pasadena, Texas and pending acquisitions, subject
to the fulfillment of all required conditions, of 50% interests in two gas-fired
facilities with an aggregate capacity of 390 megawatts in Virginia and Florida.

 On January 31, 1997, the Company  acquired the Calpine Gas Fields (formerly the
Montis  Niger Gas Fields) for a total price of  approximately  $7.1 million plus
$824,000  for certain  working  capital  items.  The Calpine Gas Fields have 9.7
billion  cubic feet of estimated  proven gas  reserves  and an 80-mile  pipeline
system which provide gas to the Company's Greenleaf 1 and 2 Power Plants.

 In  February  1997,  the  Company  commenced  construction  of a  240  megawatt
gas-fired  cogeneration project at the Phillips Houston Chemical Complex ("HCC")
located in Pasadena,  Texas (the "Pasadena Cogeneration  Project").  The Company
has entered  into an agreement to supply HCC with  approximately  90  megawatts,
with  the  remainder  of  available  electricity  output  to be  sold  into  the
competitive  market.  The Pasadena  Cogeneration  Project is the first  merchant
power plant to be financed with non-recourse project debt and is scheduled to be
operational in 1998. In February 1997, the Company  announced the development of
a 480 megawatt  gas-fired  cogeneration  project in Sutter  County,  in northern
California (the "Sutter Cogeneration Project").  The Sutter Cogeneration Project
would  be  northern   California's   first  merchant  power  plant.  The  Sutter
Cogeneration  project is  expected  to provide  electricity  to the  deregulated
California  power market  commencing in the year 2000.  The Company is currently
pursuing regulatory agency permits for this project.

 On May 16, 1997, the Company  entered into  agreements to acquire 50% interests
in the 240 megawatt Gordonsville Power Plant located west of Richmond,  Virginia
and the 150 megawatt Auburndale Power Plant located outside of Orlando, Florida.
The Company  currently  expects to complete the acquisition upon the fulfillment
of all required conditions. However, there can be no assurances that the Company
will successfully complete this acquisition.


                                     - 13 -

<PAGE>



 On June 23,  1997,  the  Company  completed  the  acquisition  of a 50%  equity
interest in the 450 megawatt  Texas City Power Plant and the 377 megawatt  Clear
Lake Power Plant for an aggregate purchase price of $35.4 million.  As a part of
that  acquisition,  the  Company  entered  into a  $125.0  million  non-recourse
financing  agreement  with The Bank of Nova  Scotia,  the proceeds of which were
utilized  for the  acquisition  of the 50% equity  interest  and the purchase of
$155.6  million of outstanding  non-recourse  project debt  associated  with the
Texas City and Clear Lake Power Plants.  The Company  accounts for its 50% share
of  earnings  from the Texas City and Clear Lake Power  Plants  under the equity
method  of   accounting   and  such   earnings  are  included  in  "income  from
unconsolidated investments in power projects".

 Included in the results of  operations  for the three and six months ended June
30, 1997 are the King City and Gilroy  Power Plants which each have a generating
capacity of 120  megawatts.  The King City Power Plant has been  included in the
Company's  consolidated  results of operations  since the May 2, 1996  effective
date of the operating lease, and the Gilroy Power Plant since its acquisition on
August 29, 1996.  As scheduled by PG&E and in accordance  with their  respective
power sales  agreements,  the King City and Gilroy Power Plants did not generate
electricity  during the four months ended April 30,  1997.  As  scheduled,  both
power plants resumed operation on May 1, 1997.

 Each of the Company's  consolidated power plants produces  electricity for sale
to a utility or, in certain  instances,  other third-party  purchasers.  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. The Company has a net interest of 421 megawatts of the aggregate
capacity generated by nine power plants that deliver  electricity to Pacific Gas
and 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
agreements, PG&E pays a fixed price for each unit of electrical energy according
to schedules set forth in such agreements (which represent 17%, or 73 megawatts,
of such  net  interest).  The  fixed  price  periods  under  these  power  sales
agreements expire at various times from 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 avoided cost of energy,  which is determined  and published  each
month by the utility.  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 QFs. On December 9, 1996, the CPUC approved a
new methodology for the  calculation of short-run  avoided cost ("SRAC"),  which
was  effective  retroactive  to  October  1,  1996 and will  continue  until the
independent power exchange has commenced operations and is functioning properly.
The independent power exchange is scheduled to commence operations on January 1,
1998.  Thereafter,  the  SRAC  will  become  the  energy  clearing  price of the
independent power exchange. The currently prevailing SRAC is substantially lower
than the fixed energy prices under these power sales agreements and is generally
expected to remain so. While SRAC does not affect  capacity  payments  under the
power  sales  agreements,   in  the  event  that  the  SRAC  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  may have a  material  adverse  effect  on the  Company's  results  of
operations.  The Company  cannot  predict the likely level of SRAC prices at the
expiration of the fixed price periods. The majority of the capacity revenues are
paid  during  the  months  of May  through  October.  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  revenue  under the steam
sales agreements for the steam fields.

 Certain of the Company's power and steam sales agreements  contain  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.  For the
year  ended  December  31,  1996,  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.  For the three and six months ended June 30, 1997,  such facilities
experienced  a reduced  amount of  curtailment  compared to the same  periods in
1996. Due to an amendment to the power sales  contracts  executed in April 1997,
the Company  currently does not expect  curtailment  during the remainder of the
term of the power sales agreements for these power plants.


                                     - 14 -

<PAGE>



 Many states are implementing or considering  regulatory initiatives designed to
increase  competition in the domestic  power  generation  industry.  In December
1995,  the  CPUC  issued  an  electric  industry  restructuring  decision  which
envisions  commencement of deregulation and implementation of customer choice of
electricity supplier by January 1, 1998. Legislation  implementing this decision
was  adopted  in  September  1996.  As part of its  policy  decision,  the  CPUC
indicated that power sales agreements of existing qualifying facilities 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 operation.  The Company believes that
any such  restructuring  would not have a  material  effect  on its power  sales
agreements and, accordingly,  believes that its existing business and results of
operations would not be materially adversely affected,  although there can be no
assurance in this regard.

 SELECTED OPERATING DATA

 Set forth below is certain selected operating  information for the power plants
and steam fields for which results are  consolidated in the Company's  statement
of  operations.  The  information  set forth under power plants  consists of the
results for the West Ford Flat and Bear Canyon Power Plants, the Greenleaf 1 and
2 Power Plants, the Watsonville Power Plant, the King City Power Plant since May
2, 1996, and the Gilroy Power Plant since August 29, 1996. 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 the Calpine  Thermal  Steam
Fields (dollar amounts in thousands, except per kilowatt hour amounts).

<TABLE>
<CAPTION>
                                      Three Months Ended             Six Months Ended
                                           June 30,                       June 30,
                                   ------------------------      ------------------------
                                      1997           1996           1997           1996
                                   ---------      ---------      ---------      ---------
<S>                                <C>            <C>            <C>           <C>    
Power Plants
  Electricity revenues
    Energy                         $  25,293      $  19,022      $  44,270      $  34,362
    Capacity                       $  26,762      $  18,208      $  31,943      $  19,774
  Megawatt hours produced            552,057        408,413        820,666        739,088
  Average energy rate per
    kilowatt hour produced         $  0.0458      $  0.0466      $  0.0539      $  0.0465

Steam Fields
  Steam revenues                   $  10,584      $   9,025      $  20,113      $  17,895
  Megawatt hours produced            672,233        485,389      1,279,071      1,041,428
  Average energy rate per
    kilowatt hour produced         $  0.0157      $  0.0186      $  0.0157      $  0.0172
</TABLE>


Electric  energy and  capacity  revenue  increased  for the three and six months
ended June 30, 1997  compared to the same periods in 1996,  primarily due to the
Gilroy and King City Power Plants.

 Megawatt hours produced by power plants  increased in 1997 compared to the same
periods in 1996,  primarily due to 121,000 megawatt hours produced by the Gilroy
Power Plant for the three and six months ended June 30,  1997.  The Gilroy Power
Plant was  acquired by the Company in August  1996.  During the six months ended
June 30, 1997,  Greenleaf 1 Power Plant  production  declined by 51,000 megawatt
hours as it did not operate for the period from  January 1 to February  26, 1997
due to flooding in the vicinity of the power plant.  The average energy rate per
kilowatt hour produced for all power plants  declined for the three months ended
June 30, 1997 compared to the same period in 1996, primarily due to lower priced
Gilroy energy production. The average energy rate per kilowatt hour produced for
all power plants  increased  for the six months ended June 30, 1997  compared to
the same period in 1996,  reflecting  increases in the average energy prices per
kilowatt hour produced during 1997 at certain gas-fired power plants.

 Steam field  megawatt  hours  produced  increased  for the three and six months
ended June 30, 1997 compared to the same periods in 1996,  primarily due to more
production and less curtailment  during 1997. During 1996, PG&E Unit 13 was shut
down  from  March  23 to May 25 for  installation  of a new  turbine  rotor.  In
addition,  the SMUDGEO#1 power plant was shut down from April 21 to June 5, 1996
for a scheduled overhaul. The average 

                                     - 15 -

<PAGE>



energy rates per kilowatt hour  produced  during 1997 were lower than the prices
for the comparable periods in 1996,  primarily due to lower prices in accordance
with the power sales agreements.

 OTHER FINANCIAL DATA AND RATIOS

 Set forth below are  certain  other  financial  data and ratios for the periods
indicated (in thousands, except ratio data):

<TABLE>
<CAPTION>
                                                  Three Months Ended           Six Months Ended
                                                      June 30,                     June 30,
                                              -------------------------     --------------------------
                                                 1997           1996          1997          1996
                                              -----------     ---------     ---------     --------
<S>                                            <C>             <C>           <C>           <C>    
 Depreciation and amortization                 $   12,216      $  8,475      $ 23,548      $15,350
 Interest expense per indenture                $   14,453      $ 11,528      $ 28,621      $20,081
 EBITDA                                        $   43,218      $ 27,783      $ 62,697      $41,136
 EBITDA to interest expense per indenture            2.99x         2.41x         2.19x        2.05x
</TABLE>

 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.  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).

 Interest  expense  per  indenture  is defined as total  interest  expense  plus
one-third  of all  operating  lease  obligations,  dividends  paid in respect to
preferred stock and cash contributions to any employee stock ownership plan used
to pay interest on loans to purchase capital stock of the Company.


 RESULTS OF OPERATIONS

 Three and Six Months Ended June 30, 1997 Compared to Three and Six Months Ended
 June 30, 1996

 Revenue.  Total revenue was $67.7 million and $107.0  million for the three and
six months ended June 30, 1997  compared to $50.3  million and $82.0 million for
the comparable  periods in 1996.  Electricity and steam sales revenue  increased
35% and 34% to $62.6  million  and $96.3  million  for the three and six  months
ended  June 30,  1997  compared  to $46.3  million  and  $72.0  million  for the
comparable  periods in 1996.  The  increase  for the three months ended June 30,
1997 was  primarily  due to $11.0 million of revenue from the Gilroy Power Plant
acquired in August 1996, $1.4 million of higher revenue from the King City Power
Plant  (included  in Company  operations  since May 1996),  and $3.4  million of
higher revenue from the Company's  geothermal  facilities.  The increase for the
six months  ended June 30, 1997 was  primarily  due to $13.5  million of revenue
from the Gilroy Power Plant,  $2.6 million of higher  revenue from the King City
Power Plant, $5.9 million of higher revenue from the Company's  geothermal power
plants,  and $2.4 million due to increased prices or production at other Company
gas-fired power plants. As scheduled,  the King City and Gilroy Power Plants did
not generate  electrical  energy and did not earn energy revenue during the four
months ended April 30, 1997. Included in geothermal revenue are revenue from the
West Ford Flat and Bear Canyon Power Plants which  increased by $1.8 million and
$3.7  million for the three and six months  ended June 30, 1997  compared to the
same periods in 1996,  primarily due to increased kilowatt hour generation.  The
West Ford Flat and Bear Canyon  Power  Plants were  curtailed  under their power
sales agreements for  approximately  $251,000 and $1.9 million of revenue during
the three and six months ended June 30,  1997,  compared to  approximately  $2.3
million and $4.9  million of revenue  during the same  periods in 1996.  Thermal
Power  Company also  contributed  $859,000 and $1.8 million more revenue for the
three and six months  ended June 30,  1997 than the same  periods in 1996 due to
increased steam sales under the alternative  pricing agreement entered into with
PG&E in March  1996.  Service  contract  revenue  decreased  39% and 35% to $1.7
million and $2.8 for the three and six months  ended June 30,  1997  compared to
$3.5 and $5.4 million  primarily due to overhauls at the Aidlin and Agnews power
plants during 1996.  Income from  unconsolidated  investments  in power projects
increased  to $2.1  million and $4.2  million for the three and six months ended
June 30,  1997  compared to $298,000  and $1.7  million for the same  periods in
1996. The increase is primarily attributable to increased equity income from the
Company's investment

                                     - 16 -

<PAGE>



in Sumas Cogeneration Company, L.P. ("Sumas").  The increase in Sumas income was
primarily due to lower  operating costs in 1997 as the plant operated at minimum
capacity  from  February  to June 1997 in  accordance  with the the power  sales
agreement.  However,  Sumas  also  received a higher  price for energy  sold and
certain other  payments from Puget Sound Power and Light Company under the power
sales agreement. In addition, operating costs were lower in 1997 Interest income
on loans to power projects increased 41% and 4% to $1.3 million and $3.0 million
for the three and six months  ended June 30, 1997  compared to $920,000 and $2.8
million for the comparable periods in 1996, primarily related to interest income
on the  loans to the sole  shareholder  of Sumas  Energy,  Inc.,  the  Company's
partner in the Sumas project.

 Cost of revenue.  Cost of revenue  increased  24% and 32% to $37.2  million and
$67.8 million for the three and six months ended June 30, 1997 compared to $30.0
million and $51.3 million for the  comparable  periods in 1996. The increase was
primarily due to plant  operating,  depreciation  and operating  lease  expenses
attributable  to the  operations  of the King City and Gilroy Power Plants which
have been included in the Company's  operations since May 2, 1996 and August 29,
1996, respectively.

 Project development expenses increased to $1.8 million and $3.9 million for the
three and six months  ended June 30, 1997  compared to $894,000 and $1.4 million
for the same  periods  in 1996.  The  increase  was due  primarily  to  expanded
business acquisition and development activities.

 General  and  administrative  expenses.  General  and  administrative  expenses
increased  38% and 46% to $4.4  million  and $8.6  million for the three and six
months  ended June 30, 1997  compared to $3.2  million and $5.9  million for the
same periods in 1996.  The increase in 1997 was due to additional  personnel and
related expenses necessary to support the Company's expanded operations.

 Interest expense. Interest expense increased to $13.2 million and $26.1 million
for the three and six months ended June 30, 1997  compared to $10.4  million and
$18.7 million for the comparable periods in 1996. The 27% increase for the three
months ended June 30, 1996 compared to the same period in 1996 was  attributable
to $2.4 million of interest on debt  related to the Gilroy Power Plant  acquired
in August  1996 and $2.4  million of  increased  interest  on the 10 1/2% Senior
Notes Due 2006 issued in May 1996,  offset by  $723,000 of interest  capitalized
for the  construction of the Pasadena Power Plant and a $1.5 million decrease in
interest  expense  primarily as a result of  repayments  of principal on certain
non-recourse  project  financings  and  other  short-term  borrowings.  The  40%
increase for the six months  ended June 30, 1997  compared to the same period in
1996 was  attributable to $7.3 million of increased  interest expense related to
the 10 1/2%  Senior  Notes  Due 2006  issued  in May 1996  and $4.7  million  of
interest  on debt  related to the Gilroy  Power Plant  acquired in August  1996,
offset by $1.3  million of  interest  capitalized  for the  construction  of the
Pasadena Power Plant and a $3.2 million decrease in interest  expense  primarily
as  a  result  of  repayments  of  principal  on  certain  non-recourse  project
financings and other short-term borrowings.

 Other income, net. Other income, net increased to $4.3 million and $7.9 million
for the three and six months  ended June 30, 1997  compared to $2.2  million and
$2.8 million for the same periods in 1996 due to interest  earned on higher cash
and cash  equivalent  balances  and  interest  income  earned on the  collateral
securities for the King City Power Plant.

 Provision for income taxes. The effective income tax rate was approximately 39%
and 36% for the three and six months ended June 30, 1997. The effective tax rate
differs  from the federal  statutory  rate due to the effect of state tax rates
offset by depletion in excess of tax basis benefits at the Company's  geothermal
facilities.  The effective rate for the three and six months ended June 30, 1996
was 41% which approximates federal and state statutory tax rates.


                                     - 17 -

<PAGE>



 LIQUIDITY AND CAPITAL RESOURCES

 The following table summarizes the Company cash flow activities for the periods
indicated (in thousands):


                                                    Six Months Ended
                                                        June 30,
                                                1997               1996
                                             ----------         ----------
 Cash flows from:
     Operating activities                     $  16,800         $    5,035
     Investing activities                      (220,497)          (126,051)
     Financing activities                       127,123            137,609
                                             ----------         ----------
         Total                               $  (76,574)        $   16,593
                                             ==========         ==========

Operating  activities  provided  $16.8 million for the six months ended June 30,
1997  consisting of  approximately  $5.4 million of net income from  operations,
$1.9  million in  deferred  income  taxes,  $21.8  million of  depreciation  and
amortization,  $15.7 million net decrease in operating  assets and  liabilities,
$6.1 million partnership  distribution from unconsolidated  investments in power
projects and $1.6 million distribution from Coperlasa, offset by $4.2 million of
income from unconsolidated investments in power projects.

Investing  activities  used $220.5  million during the six months ended June 30,
1997,  primarily due to $192.0 million for the acquisition of Texas Cogeneration
Company and the related notes receivable,  $39.7 million of capital expenditures
related to the construction of the Pasadena Power Plant,  $17.9 million of other
capital  expenditures,  $7.6 million for the acquisition of Calpine Gas Company,
offset by a $5.7  million  loan  payment  from  Texas  City and Clear Lake Power
Plants,  $5.3 million of collateral  security  maturities in connection with the
King City Power Plant and a $29.5 million decrease in restricted cash, primarily
related to the Pasadena Power Plant.

Financing activities provided $127.1 million of cash during the six months ended
June 30, 1997  consisting of $139.3 million of borrowings for the acquisition of
Texas Cogeneration  Company and the related debt, $3.3 million of borrowings for
contingent  consideration in connection with the acquisition of the Gilroy Power
Plant, offset by $15.9 million repayment of non-recourse project debt.

As of June 30, 1997,  cash and cash  equivalents  were $23.4 million and working
capital was a negative  $77.2  million.  For the six months ended June 30, 1997,
cash  and cash  equivalents  decreased  by $76.6  million  and  working  capital
decreased by $173.4  million as compared to the period ended  December 31, 1996.
The decrease in working  capital is primarily  due to the use of available  cash
and  proceeds  from a  non-recourse  project  financing  due  June  1998  in the
acquisition  of  Texas   Cogeneration   Company  and  in  the  purchase  of  the
non-recourse project financing of the Texas City and Clear Lake Power Plants.

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.

At June 30, 1997,  the Company had  outstanding  $105.0 million of 9 1/4% Senior
Notes Due 2004  which  mature on  February  1,  2004 and bear  interest  payable
semi-annually on February 1 and August 1 of each year. In addition,  the Company
had $180.0 million of 10 1/2% Senior Notes Due 2006 which mature on May 15, 2006
and bear interest payable  semi-annually on May 15 and November 15 of each year.
Under the  provisions  of the  applicable  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. On July 8, 1997, the
Company  issued  $200.0  million of 8 3/4% Senior Notes Due 2007 which mature on
July 15, 2007 and bear interest payable  semi-annually of January 15 and July 15
of each year,  beginning  January 1, 1998. Of the $195.0 million of net proceeds
from the sale of the Senior  Notes,  the  Company  repaid  approximately  $124.1
million of existing  indebtedness  (see Note 9 for use of  proceeds  and further
information).  The  Company  anticipates  that a portion  of the  remaining  net
proceeds will be used to finance potential future acquisitions.

                                     - 18 -

<PAGE>



At June 30,  1997,  the  Company  had  $301.5  million of  non-recourse  project
financing  associated with power  generating  facilities and steam fields at the
West Ford Flat Power Plant,  the Bear Canyon  Power Plant,  the PG&E Unit 13 and
Unit 16 Steam Fields,  the SMUDGEO #1 Steam Fields,  the Greenleaf 1 and 2 Power
Plants and the Gilroy Power Plant.  Utilizing a portion of the net proceeds from
the sale of the 8 3/4%  Senior  Notes  Due  2007,  on July 8,  1997 the  Company
extinguished  $102.7 million of non-recourse  project  financing  related to the
Company's  geothermal  assets.  After  such  early  extinguishment,  the  annual
maturities  for all  non-recourse  project  financing  were $8.3 million for the
remainder of 1997, $9.7 million for 1998,  $8.7 million for 1999,  $10.4 million
for 2000, $10.6 million for 2001 and $149.8 million thereafter.

At June 30, 1997, the Company had $119.3 million of non-recourse borrowings from
The Bank of Nova  Scotia  in  connection  with  the  acquisition  of 50%  equity
interests  in the Texas City and Clear Lake Power  Plants.  Such debt matures on
June 22, 1998 and is expected to be repaid  prior to maturity  with the proceeds
of a planned refinancing of the $155.6 million non-recourse project debt owed by
the Texas City and Clear Lake Power Plants.

The Company  currently has a $50.0 million  revolving  credit  agreement  with a
consortium of commercial  lending  institutions  led by The Bank of Nova Scotia,
with borrowings  bearing  interest at either LIBOR or at The Bank of Nova Scotia
base rate plus a mutually agreed margin. At June 30, 1997, the Company had $14.3
million  of  borrowings  outstanding  and $2.7  million  of  letters  of  credit
outstanding under the revolving credit facility (see Note 7). The Company repaid
the $14.3 million of borrowings on July 8, 1997.  The Bank of Nova Scotia credit
facility  contains certain  restrictions that  significantly  limit or prohibit,
among other  things,  the ability of the  Company or its  subsidiaries  to incur
indebtedness,  make  payments  of  certain  indebtedness,  pay  dividends,  make
investments,  engage in transactions with affiliates,  create liens, sell assets
and engage in mergers and consolidations.

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 June 30,  1997,  the Company had no  borrowings  under this  working
capital  line and  $974,000 of letters of credit  outstanding.  Borrowings  bear
interest at prime plus 1%.

At June 30, 1997, the Company 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
had been discounted to yield 8% per annum and was due September 9, 1997. On July
10, 1997,  the Company  extinguished  this debt with the payment of $6.4 million
(see Note 9).

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 June 30, 1996, the Company had commitments  for capital  expenditures in 1997
totaling $44.2 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 the six months
ended June 30, 1997 of $57.6 million included $39.7 million for the construction
of the Pasadena Power Plant,  $8.2 million related to the geothermal  facilities
and the remaining $9.7 million at the gas-fired power plants.

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

The Company believes that it will have sufficient  liquidity from cash flow from
operations  and  borrowings  available  under the lines of  credit  and  working
capital to satisfy all obligations  under outstanding  indebtedness,  to finance
anticipated  capital  expenditures  and to  fund  working  capital  requirements
through December 31, 1997.


                                     - 19 -

<PAGE>



Impact of Recent Accounting Pronouncement

In  February  1997,  the FASB issued SFAS No.  128,  Earnings  Per Share,  which
simplifies the standards for computing  earnings per share  previously  found in
APBO No. 15. SFAS No. 128  replaces  the  presentation  of primary  earnings per
share with a presentation of basic earnings per share,  which excludes dilution.
SFAS No. 128 also requires dual  presentation of basic and diluted  earnings per
share on the face of the income  statement for all entities with complex capital
structures and requires a reconciliation. Diluted earnings per share is computed
similarly to fully diluted  earnings per share pursuant to APBO No. 15. SFAS No.
128 must be adopted for  financial  statements  issued for periods  ending after
December  15,  1997,  including  interim  periods;  earlier  application  is not
permitted.  SFAS No. 128 requires  restatement of all prior-period  earnings per
share  data  presented.  For the three  months  ended June 30,  1997,  basic and
diluted earnings per share would not be materially different to the earnings per
share  presented  in  the  accompanying   condensed  consolidated  statement  of
operations.

In June 1997, the FASB issued SFAS No.130, Reporting Comprehensive Income, which
establishes  standards for reporting and display of comprehensive income and its
components   (revenues,   expenses,   gains  and   losses)  in  non-   condensed
general-purpose  financial  statements.  SFAS No.130 requires  classification of
other  comprehensive  income by their nature in a financial  statement,  and the
display of the accumulated balance of other comprehensive income separately from
retained  earnings and  additional  paid-in  capital in the equity  section of a
statement  of  financial  position.  SFAS No.130 is  effective  for fiscal years
beginning after December 15, 1997. The Company believes this  pronouncement will
not have a material effect on its financial statements.

In June 1997, the FASB also issued SFAS No.131, Disclosures about Segments of an
Enterprise  and Related  Information,  which  established  standards for the way
public business  enterprises  report  information  about  operating  segments in
annual financial  statements and requires that those enterprises report selected
information   about  operating   segments  in  interim   financial   reports  to
shareholders.  SFAS No.131 also  establishes  standards for related  disclosures
about products and services,  geographic areas and major customers.  SFAS No.131
is  effective  for fiscal years  beginning  after  December  15, 1997,  although
earlier application is encouraged.  The Company believes this pronouncement will
not have a material effect on its financial statements.



                           PART II. OTHER INFORMATION

ITEM 1.           LEGAL PROCEEDINGS

None.

ITEM 2.           CHANGE IN SECURITIES

None.

ITEM 3.           DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The  Company's  Annual  Meeting  of  Stockholders  was held on June 5, 1997 (the
"Annual Meeting") in San Jose, California.  At the Annual Meeting,  stockholders
voted on two matters:  (i) the election of three Class I directors for a term of
three years  expiring in 2000 and (ii) the  ratification  of the  appointment of
Arthur Andersen LLP as independent  auditors for the Company for the year ending
December 31, 1997. The stockholders elected management's nominees as the Class I
directors in an uncontested election and ratified the appointment of independent
auditors by the following votes, respectively:


                                     - 20 -

<PAGE>



(i)  Election of Class I directors for a three year term expiring in 2000:

                                      Votes                Votes
                                       For                Withheld
                                  ---------------       --------------
     Jeffrey E. Garten              13,404,368               18,815
     George J. Stathakis            13,403,700               19,483
     John O. Wilson                 13,404,568               18,615

     The  Company's  Board of Directors is currently  comprised of seven members
     that are divided into three classes with overlapping  three-year terms. The
     term of the Class II directors  (Ann B. Curtis and V. Orville  Wright) will
     expire at the annual  meeting of  stockholders  to be held in 1998, and the
     Class III directors  (Peter  Cartwright and Susan C. Schwab) will expire at
     the annual meeting to be held in 1999.

(ii) Ratification of appointment of Arthur Andersen LLP as independent auditors:

                    Votes                Votes
                     For                Against             Abstain
               ---------------       --------------      --------------
                    13,384,188                  913              38,082


ITEM 5.           OTHER INFORMATION

None.

ITEM 6.           EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits

The following exhibits are filed herewith unless otherwise indicated:

Exhibit 11        Computation of Earnings Per Share

Exhibit 27        Financial Data Schedule

Exhibit
Number                Description

3.1      Amended  and  Restated   Certificate   of   Incorporation   of  Calpine
         Corporation, a Delaware corporation. (l)

3.2      Amended  and  Restated  Bylaws  of  Calpine  Corporation,   a  Delaware
         corporation. (l)

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. (m)


                                     - 21 -

<PAGE>



4.3      Indenture dated as of July 8, 1997, between Calpine Corporation and The
         Bank of New York, as Trustee, including form of Notes. *

4.4      Registration  Rights  Agreement dated as of July 1, 1997 by and between
         Calpine Corporation and Credit Suisse First Boston Corporation,  Morgan
         Stanley & Co.  Incorporated,  Salomon  Brothers  Inc.,  Scotia  Capital
         Markets (USA) Inc.,  BancAmerica  Securities,  Inc. and CIBC Wood Gundy
         Securities Corp. *

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)

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 l, 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)


                                     - 22 -

<PAGE>



10.1.13  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)

10.1.14  Lease  dated as of April  24,  1996  between  BAF  Energy A  California
         Limited Partnership,  Lessor, and Calpine King City Cogen, LLC, Lessee.
         (j)

10.1.15  Credit  Agreement,  dated as of August 28, 1996,  among Calpine  Gilroy
         Cogen, L.P. and Banque Nationale de Paris. (l)

10.1.16  Credit  Agreement,  dated  as of  September  25,  1996,  among  Calpine
         Corporation and The Bank of Nova Scotia. (m)

10.1.17  Credit Agreement,  dated December 20, 1996, among Pasadena Cogeneration
         L.P. and ING (U.S.) Capital  Corporation  and The Bank Parties  Hereto.
         (n)

10.1.18  Credit  Agreement,  dated as of June 23, 1997,  among  Calpine  Finance
         Company and Certain  Commercial Lending  Institutions,  and The Bank of
         Nova Scotia as the Agent for the Lenders. *

10.1.19  Purchase agreement dated as of July 1, 1997, among Calpine  Corporation
         and The Bank of New York as the Trustee. *

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)

10.2.3   Share  Purchase   Agreement   dated  March  30,  1995  between  Calpine
         Corporation,  Calpine Greenleaf Corporation, Radnor Power Corp. and LFC
         Financial Corp. (e)

10.2.4   Asset  Purchase  Agreement,  dated as of August 28, 1996,  among Gilroy
         Energy Company,  McCormick & Company,  Incorporated  and Calpine Gilroy
         Cogen, L.P. (m)

10.2.5   Noncompetition / Earnings Contingency Agreement, dated as of August 28,
         1996,  among Gilroy Energy Company,  McCormick & Company,  Incorporated
         and Calpine Gilroy Cogen, L.P. (m)

10.2.6   Purchase and Sale  Agreement  dated as of March 27, 1997 between  Enron
         Power Corp. and Calpine Finance Company. *

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)


                                     - 23 -

<PAGE>



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)

10.3.10  Long-Term Energy and Capacity Power Purchase Agreement,  dated December
         5, 1985,  between  Calpine  Gilroy  Cogen,  L.P.  and  Pacific  Gas and
         Electric Company,  and Amendments thereto dated December 19, 1993, July
         18, 1985, June 9, 1986, August 18, 1988 and June 9, 1991. (l)

10.3.11  Amended and Restated Energy Sales  Agreement,  dated December 16, 1996,
         between Phillips Petroleum Company and Pasadena Cogeneration, L.P. (n)

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 l,
         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)


                                     - 24 -

<PAGE>



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)

10.5.5   Amended and Restated Operating  Agreement for the Geysers,  dated as of
         December 31, 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)

10.6     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)

                                     - 25 -

<PAGE>



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)

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  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)

10.9.1   Calpine  Corporation  Stock  Option  Program  and  forms of  agreements
         thereunder. (a)

10.9.2   Calpine  Corporation  1996 Stock Incentive Plan and forms of agreements
         thereunder. (l)

10.9.3   Calpine   Corporation   Employee  Stock  Purchase  Plan  and  forms  of
         agreements thereunder. (l)


                                     - 26 -

<PAGE>



10.10.1  Amended and Restated  Employment  Agreement between Calpine Corporation
         and Mr. Peter Cartwright. (l)

10.10.2  Senior Vice President  Employment Agreement between Calpine Corporation
         and Ms. Ann B. Curtis. (l)


10.10.3  Senior Vice President  Employment Agreement between Calpine Corporation
         and Mr. Lynn A. Kerby. (l) 

10.10.4  Vice President Employment Agreement between Calpine Corporation and Mr.
         Ron A. Walter. (l)

10.10.5  Vice President Employment Agreement between Calpine Corporation and Mr.
         Robert D. Kelly. (l)

10.10.6  Amended Consulting  Contract between Calpine Corporation and Mr. George
         J. Stathakis. (o)

10.11    Form of Indemnification Agreement for directors and officers. (l)


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


*        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 June 30, 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 June 30, 1996 and filed on May 15, 1996.

(l)      Incorporated  by reference to  Registrant's  Registration  Statement on
         Form S-1 (Registration Statement No. 333-07497).

                                     - 27 -

<PAGE>



(m)      Incorporated  by reference to  Registrant's  Current Report on Form 8-K
         dated August 29, 1996 and filed on September 13, 1996.

(n)      Incorporated  by reference to  Registrant's  Annual Report on Form 10-K
         dated December 31, 1996 and filed on June 30, 1997.

(o)      Incorporated by reference to Registrants  Quarterly Report on Form 10-Q
         dated March 31, 1997 and filed on May 12, 1997.


(b)      Reports on Form 8-K

         Current report dated June 5, 1997 and filed on June 17, 1997
               Item 5.  Other Events  --  Preferred Share Purchase Rights

         Current report dated June 24, 1997 and filed on July 1, 1997
               Item 5.  Other Events  --  Proposed Rule 144A offering of 
                        $200.0 million principal amount of Senior Notes Due 2007

         Current report dated July 2, 1997 and filed on July 7, 1997
               Ite  5.  Other  Events -- Pricing of Rule 144A  offering  of
                        $200.0 million principal  amount  of 8-3/4%  Senior
                        Notes Due 2007                    
                                            



                                     - 28 -

<PAGE>



                                   SIGNATURES

Pursuant to the  requirements  of the  Securities  and Exchange Act of 1934, the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.



CALPINE CORPORATION



By:            /s/  Ann B. Curtis                        Date:   August 13, 1997
         -------------------------------
         Ann B. Curtis
         Senior Vice President
         (Chief Financial Officer)



By:           /s/  Gloria S. Gee                         Date:   August 13, 1997
         ------------------------------
         Gloria S. Gee
         Corporate Controller
         (Chief Accounting Officer)





                                     - 29 -

<PAGE>





                                  EXHIBIT INDEX


Exhibit
Number                                      Description

11                   Computation of Earnings Per Share

27                   Financial Data Schedule

4.3                  Indenture dated as of July 8, 1997, between Calpine
                     Corporation and The Bank of New York, as Trustee,
                     including form of Notes.

4.4                  Registration Rights Agreement dated as of July 1, 1997 by
                     and between Calpine Corporation and Credit Suisse First
                     Boston Corporation, Morgan Stanley & Co. Incorporated,
                     Salomon Brothers Inc., Scotia Capital Markets (USA) Inc.,
                     BancAmerica Securities, Inc. and CIBC Wood Gundy
                     Securities Corp.

10.1.18              Credit Agreement, dated as of June 23, 1997, among
                     Calpine Finance Company and Certain Commercial Lending
                     Institutions, and The Bank of Nova Scotia as the Agent for
                     the Lenders.

10.1.19              Purchase  agreement dated as of July 1, 1997, among Calpine
                     Corporation and The Bank of New York as the Trustee.

10.2.6               Purchase and Sale Agreement dated March 27, 1997
                     between Enron Power Corp. and Calpine Finance Company.



                                     - 30 -

<PAGE>


                                   EXHIBIT 11

                      CALPINE CORPORATION AND SUBSIDIARIES

                        COMPUTATION OF EARNINGS PER SHARE
                    (in thousands, except per share amounts)
                                   (unaudited)



<TABLE>
<CAPTION>

                                               Three Months Ended              Six Months Ended
                                                    June 30,                       June 30,
                                            -------------------------      ------------------------
                                              1997            1996           1997           1996
                                            ---------       ---------      ---------      ---------

<S>                                         <C>             <C>            <C>            <C>      
Net income (loss)                           $   9,400       $   4,717      $   5,360      $   4,423
                                            =========       =========      =========      =========

Primary earnings per share
   Weighted average number of
     common  shares outstanding                19,911          10,388         19,882         10,388
   Conversion of preferred stock                   --           2,179             --          1,221
   Common shares issuable upon
     exercise of stock options using
     the treasury method                        1,087             795            543            398
                                            ---------       ---------      ---------      ---------
                                               20,998          13,362         20,425         12,007
                                            =========       =========      =========      =========

       Primary earnings per share           $    0.45       $    0.35      $    0.26      $    0.37
                                            =========       =========      =========      =========

Fully diluted earnings per share
   Weighted average number of
     common  shares outstanding                19,911          10,388         19,882         10,388
   Conversion of preferred stock                   --           2,179             --          1,221
   Common shares issuable upon
     exercise of stock options using
     the treasury method                        1,106             795          1,106            795
                                            ---------       ---------      ---------      ---------
                                               21,017          13,362         20,988         12,404
                                            =========       =========      =========      =========

  Fully diluted earnings per share          $    0.45       $    0.35      $    0.26      $    0.36
                                            =========       =========      =========      =========
</TABLE>

<TABLE> <S> <C>

<ARTICLE>                     5
<LEGEND>
     THE SCHEDULE CONTAINS SUMMARY FINANCIAL  INFORMATION EXTRACTED FROM CALPINE
     CORPORATION'S  CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1997 AND
     FROM THE CONDENSED  CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS
     ENDED JUNE 30, 1997 AND IS  QUALIFIED  IN ITS ENTIRETY BY REFERENCE TO SUCH
     FINANCIAL STATEMENTS.
</LEGEND>
<CIK>                         0000916457
<NAME>                        Calpine Corporation
<MULTIPLIER>                                   1,000
<CURRENCY>                                     U.S. Dollars
       
<S>                             <C>
<PERIOD-TYPE>                   6-MOS
<FISCAL-YEAR-END>                              DEC-31-1997
<PERIOD-START>                                 JAN-01-1997
<PERIOD-END>                                   JUN-30-1997
<EXCHANGE-RATE>                                1
<CASH>                                            23,436
<SECURITIES>                                       6,056
<RECEIVABLES>                                     51,341
<ALLOWANCES>                                           0
<INVENTORY>                                        2,859
<CURRENT-ASSETS>                                 115,666
<PP&E>                                           814,826
<DEPRECIATION>                                   123,382
<TOTAL-ASSETS>                                 1,181,068
<CURRENT-LIABILITIES>                            192,846
<BONDS>                                          563,780
                                  0
                                            0
<COMMON>                                              20
<OTHER-SE>                                       209,488
<TOTAL-LIABILITY-AND-EQUITY>                   1,181,068
<SALES>                                           96,326
<TOTAL-REVENUES>                                 106,975
<CGS>                                             64,276
<TOTAL-COSTS>                                     67,795
<OTHER-EXPENSES>                                       0
<LOSS-PROVISION>                                       0
<INTEREST-EXPENSE>                                26,145
<INCOME-PRETAX>                                    8,397
<INCOME-TAX>                                       3,037
<INCOME-CONTINUING>                                5,360
<DISCONTINUED>                                         0
<EXTRAORDINARY>                                        0
<CHANGES>                                              0
<NET-INCOME>                                       5,360
<EPS-PRIMARY>                                       0.26
<EPS-DILUTED>                                       0.26
        

</TABLE>

                  INDENTURE   dated  as  of  July  8,  1997,   between   Calpine
Corporation, a Delaware corporation (the "Company"), and The Bank of New York, a
New York banking corporation (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 8
3/4% Senior Notes Due 2007:


                                    ARTICLE I

                   DEFINITIONS AND INCORPORATION BY REFERENCE

SECTION 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  Subsid  iary;  (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  securi ties,  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

                                        1

<PAGE>



Affiliate of any such  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
(includ ing 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 Re stricted  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  Restrict ed  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 obliga
tions 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 determi nation to the dates of each successive scheduled principal payment of
such  Indebtedness  or scheduled  redemption or similar  payment with respect to
such In  debtedness  or  Preferred  Stock  multiplied  by (B) the amount of such
payment by (ii) the sum of all such payments.

                  "Bank Credit Agreement" means the Credit Agreement, dated
September 25, 1996, among the Company,  certain commercial lending  institutions
named  therein and The Bank of Nova Scotia,  as agent for the lenders,  as amend
ed, refinanced, renewed or extended from time to time.

                  "Board of Directors" means the Board of Directors of the Compa
ny 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  commit  ment  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 40% of the total Voting
Shares  of the  Company;  (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 Per

                                        2

<PAGE>



sons 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.

                  "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 Restrict ed 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 Restrict ed Subsidiary  shall have made any acquisition of assets or Capital
Stock  (occur ring 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 Ex pense" 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

                                        3

<PAGE>


ny or any such  Subsidiary  under any guarantee of  Indebtedness or other obliga
tion of any other Person and (vi) net costs  associated with Interest Rate Agree
ments (including  amortization of discounts) and Currency  Agreements,  plus (b)
all but the  principal  component  of rentals in  respect of  Capitalized  Lease
Obliga tions 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
Subsid iary, 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 pur chase 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 indi  rectly,  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 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  Re
stricted  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
redemp tion 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 Re stricted  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 consolida
tion 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 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  repay  ment of the
principal  thereof  prior to the payment of any  dividends or distribu  tions 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 signif
icant  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.

                  "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 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 "De
positary" 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) Consoli dated 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 Sub sidiary 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  consoli  dated 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
Compa ny into another security (other than Capital Stock of the Company which is
neither Exchangeable Stock nor Redeemable Stock).
                  "Exchange Act" means the Securities Exchange Act of 1934, as
amended.

                  "Exchange  Securities"  means the 8 3/4% Senior Notes Due 2007
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 8 3/4% per annum (9 1/4% per  annum if such  exchange
offer is not  consum  mated  before  January 5,  1997),  without  provision  for
adjustment as provided in paragraph 1 on the reverse of the Initial Securities),
that are  issued and ex  changed  for the  Initial  Securities  pursuant  to the
Registration  Rights Agreement and this Indenture or any indenture or indentures
supplemental hereto.

                  "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 de scribed 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
incorpo  rated 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 agree
ment, 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,
contin gently or otherwise,  such obligation,  and "Incurred,"  "Incurrence" and
"Incur ring" shall each have a correlative meaning; provided,  however, that any
Indebt  edness 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."

                  "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 busi ness 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 val ued at, in the case of
Redeemable  Stock,  the greater of its  voluntary or involun tary 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 re
spect  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 divi dends 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 prop erty 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 repur chase 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  unconditional
obligations,  the  outstanding  balance at such date of all such obliga tions 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
obliga tion.

                  "Indenture"  means this  Indenture as amended or  supplemented
from time to time in accordance with the applicable provisions hereunder.

                  "Initial  Securities"  means the 8 3/4% Senior  Notes Due 2007
issued by the Company  under this  Indenture  or pursuant  to any  indenture  or
indentures supplemental hereto.

                  "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
install ment 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.

                  "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 in Section 3.3, (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, divi dends, 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 Con trolled 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 succes
sors.

                  "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 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-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  Re  stricted  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  offering  and  sale  of  the  Initial
Securities  pursuant  to the  Purchase  Agreement  dated  July 1, 1997 among the
Company, Credit Suisse First Boston Corporation, Morgan Stanley & Co. 
Incorporated, Salomon Brothers Inc, Scotia Capital Markets (USA) Inc., 
CIBC Wood Gundy Securities Corp. and BancAmerica Securities, 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
Compa ny 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).

                  "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
corpora tion, 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 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.

                  "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
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 re deemable  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.

                  "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 Restrict
ed  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
refi  nances   Indebtedness   of  another   Restricted   Subsidiary)   including
Indebtedness that refinances Refinancing Indebtedness;  provided,  however, that
(i) if the Indebted ness being refinanced is contractually subordinated in right
of  payment  to  the   Securities,   the  Refinancing   Indebtedness   shall  be
contractually subordinated in right of payment to the Securities 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  Securities,  (iv) the Refi nancing  Indebtedness  has an
Average  Life at the time such  Refinancing  Indebted  ness is Incurred  that is
equal to or greater than the Average Life of the Indebt edness 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
Subsid iary.
                  "Registration Rights Agreement" means the Registration Rights
Agreement, dated as of July 1, 1997, by and among the Company, Credit Suisse
First Boston Corporation, Morgan Stanley & Co. Incorporated,  Salomon
Brothers Inc, Scotia Capital Markets (USA) Inc., CIBC Wood Gundy Securities
Corp. and BancAmerica Securities, 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 acqui
sition of Related Assets by such Restricted Subsidiary;  provided, however, that
(i)  such  Related  Asset  Indebtedness  is  Incurred  contemporaneously  with a
Refinanc ing of all of the Non-Recourse Debt of such Restricted  Subsidiary then
outstand ing 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.

                  "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
Securi ties that are issued  under and  pursuant to the terms of this  Indenture
and any indenture or indentures  supplemental hereto, as amended or supplemented
from  time to  time.  For  purposes  of this  Indenture  and  any  indenture  or
indentures  supplemental  hereto, 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.

                  "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 In
curred, in respect of (A) Indebtedness of the Company for money borrowed and (B)
Indebtedness evidenced by notes, debentures, bonds or other similar instru ments
for the  payment  of which  the  Company  is  responsible  or  liable;  (ii) all
Capitalized Lease Obligations of the Company; (iii) all obligations of the Compa
ny (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  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
liabili ties).

                  "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  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
equiva  lent  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.

                    "TIA" means the Trust  Indenture  Act of 1939 (15 U.S.  Code
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 imme diately  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.

                  "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 obliga tion 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 Subsid iary.

                  "Working  Capital Credit  Agreement"  means the Line of Credit
Note, dated as of June 4, 1993, between the Company and The Bank of Califor nia,
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 Note" ........................................................    2.1(b)
"Legal Holiday".......................................................      10.7
"Notice of Default"...................................................       5.1
"Offer Period"........................................................      3.12
"Paying Agent"........................................................       2.3
"Registrar"...........................................................       2.3
"Restricted Payment"..................................................    3.3(a)
"Successor Corporation"................................................   4.1(i)

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.

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;

                           (c)  "or" is not exclusive;

                       (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  pre  pared  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.


                                   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
and  securities  offered  and  sold in  offshore  transactions  in  reliance  on
Regulation  S shall be  issued  initially  in the form of one or more  permanent
global  Securities in registered  form,  substantially  in the form of Exhibit A
hereto,  with such  applicable  legends as are provided in Exhibit A hereto (the
"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 aggre gate  principal  amount of the 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.
                   (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 Global Note, shall bear the
following legend on the face thereof:

         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  INSTI  TUTIONAL  BUYER"  (AS
         DEFINED IN RULE 144A UNDER THE SECURITIES  ACT) OR (B) IT IS NOT A U.S.
         PERSON AND IS AC QUIRING THIS  SECURITY IN AN OFFSHORE  TRANSACTION  IN
         COMPLIANCE  WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT
         IT WILL NOT, WITHIN TWO YEARS AF TER THE LATER OF THE ORIGINAL ISSUANCE
         OF THIS SECURI TY 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) OUTSIDE THE UNITED STATES IN AN
         OFFSHORE  TRANSACTION IN COM PLIANCE WITH RULE 904 UNDER THE SECURITIES
         ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION  PROVID ED BY RULE
         144 UNDER THE  SECURITIES  ACT (IF  AVAILABLE)  OR (E)  PURSUANT  TO AN
         EFFECTIVE  REGISTRATION  STATE  MENT 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 TWO 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.  AS USED
         HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNIT

                                        4

<PAGE>



         ED 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 RE QUESTED 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  REPRESENTA  TIVE OF DTC),  ANY  TRANSFER,
         PLEDGE OR OTHER USE HERE OF 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 TRANS FERS 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.

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,
imprint ed 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  $200,000,000  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 Securi ties 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
$275,000,000 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 appoint ment, 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.

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 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) 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 pay ment 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 Securi ties) 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  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 Sec 312(a).

SECTION 2.6 Transfer and Exchange.

                    (a)  The Securities shall be transferable only upon the sur-
render 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 Regis trar 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  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 suffi

                                        5

<PAGE>


cient to cover any transfer tax or similar governmental charge payable in connec
tion  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 Global Note.
                     -------------------------------------

                   (a)  The 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 Global
Note held on their behalf by the Depositary, or the Trustee as its custodian, or
under the Global  Note and the  Depositary  may be treated by the  Company,  the
Trustee  and any agent of the Company or the  Trustee as the  absolute  owner of
such Global Note, 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  authoriza tion  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 Global Note shall be limited to
transfers of such Global Note in whole, but not in part, to the Depositary,  its
successors or their respective nominees. Beneficial interests in the Global Note
may be transferred in accordance with the applicable rules and procedures of the
Depositary and the provisions of Section 2.8 hereof.

                         (c)  The registered holder of the 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 follow ing provisions shall apply:

                           (a)  Transfers to QIBs and to Non-U.S. Persons.  The
        following provisions shall apply with respect to the registration of any
        proposed transfer of an Initial Security to a QIB and transfers to or by
        Non-U.S. Persons:

                                    (i)  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 sub  stantially  in the form of
                  Exhibit  C hereto,  that the sale has been made in  compliance
                  with the  provisions  of Rule  144A to a  transfer  ee 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 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  request ed 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)  The  Registrar   shall   register  the
                  transfer of any Initial Security 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 D hereto.

                           (b) Private Placement Legend.  Upon the transfer,  ex
         change 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
         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.

                           (c)  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  on transfer of such Security
         set forth in this  Indenture,  provided,  however,  that the  Registrar
         shall  register  the transfer of any Initial  Security,  whether or not
         such  Initial  Security  bears the  Private  Placement  Legend,  if the
         requested  transfer  is at  least  two  years  after  the  later of the
         original Issue Date of the Initial  Security and the last date on which
         such Initial  Security  was held by an  affiliate  of the  Company.  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
wrong  fully  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,  authenti cate 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.

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 Inden ture 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 redemp
tion 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
pay ment).

                  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.

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.  Such
exchange  shall be made by the Company at its own expense and without any charge
therefor.  Until so ex changed,  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 return such  cancelled
securities to the Company.  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.


                                   ARTICLE III

                                    COVENANTS

SECTION 3.1 Payment of Securities.

                  The Company  shall pay the  principal  of and  interest on the
Securi  ties 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  designa
tions;  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 agen
cy.

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 ac
quire or retire for value,  prior to scheduled  maturity or scheduled  repayment
thereof or scheduled  sinking fund payment thereon,  any  Subordinated  Indebted
ness (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 de
scribed 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 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 avail  able (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 Redeem
         able 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 Ex  changeable  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
         Unre  stricted  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) $15 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) notwithstanding clause (1) of Section 3.3(a), the
         occurrence  or  existence  of a  Default  at the  time  of  payment  of
         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); shall not prohibit the payment of such dividends;

                           (ii) any purchase,  redemption,  defeasance, or other
         acquisi tion 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 occur rence or existence of a Default or Event
         of Default shall not prohibit, for purposes of this Section, the making
         of such  purchase,  redemption,  defea  sance 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 purpos es 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
         acqui sition or retirement for value of  Subordinated  Indebtedness  of
         the  Compa  ny made by  exchange  for,  or out of the  proceeds  of the
         substantially  concurrent  Incurrence  of for  cash  (other  than  to a
         Subsidiary),  new In debtedness 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 re deemed,  repurchased,  defeased,  acquired or
         retired, (B) if the Indebt edness being purchased,  redeemed,  defeased
         or  acquired  or  retired  for  value is  Non-Recourse  Debt,  such new
         Indebtedness shall be Non-Re course Debt, (C) such new Indebtedness has
         a Stated Maturity either (1) no earlier than the Stated Maturity of the
         Indebtedness redeemed, repur chased,  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
         acqui sition 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

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.

                  (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 Indebt
         edness 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 out  standing in an aggregate  principal  amount not to exceed
         $25,000,000 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 Subsid
         iary) 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 $25,000,000;

                           (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 pro ceeds 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
         Re  stricted  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 In debtedness; 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,  retire ment,  refunding or refinancing is not prohibited by Section
3.3 or unless such In

                                        6

<PAGE>


debtedness 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:

                  (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 re
spect 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 refi nanced, 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 Indebted
ness 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.

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  Sub sidiary 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 Re stricted 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 regulatory obligations of such Person or deposits of cash of United
States Gov ernment 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 pro ceedings 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  prosecut ing 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
Indebted ness Incurred to finance the  construction  or purchase of, or repairs,
improve  ments  or  additions  to,  property,   which  shall  include,   without
limitation,  Liens on the stock of the Restricted  Subsidiary that has purchased
or owns such 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 Subsid iary  (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 Uni form
Commercial Code financing statements for informational purposes with re spect to
leases Incurred in the ordinary course of business and not otherwise pro hibited
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 consti
tute  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 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
Compa ny 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 pursu
         ant to this Section;

                      (b)  the purchase price and the Change of Control Purchase
         Date;

                      (c)  that any Security not surrendered or accepted for pay
         ment will continue to accrue interest;

                           (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 Securi ties 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
conflict  with  provisions  of this  Section,  the Company shall comply with the
appli  cable  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 Sec 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  Sections 13 or 15(d).  The Company  also shall
comply with the other provisions of TIA Sec 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
transac tion 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
compa  rable  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 Pay
ment 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 employ ees and directors of the Company  pursuant to plans approved by
the Board of Di rectors;  (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 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
Restrict ed 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 accor dance with  clause  (i),  and to the extent the Company or
such  Restricted  Subsid  iary elects (or is required by the terms of any Senior
Indebtedness  or any Indebt edness 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 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  applica  tion 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
affect ed 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 Compa ny 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  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 pur chase 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 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 Avail able 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  adjustments  as may be  deemed
appropriate by the Company so that only Securi ties 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 surren dered.

                  (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  pursu  ant 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 appli cable  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 appropri ate 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 Subsid iary may consolidate with, merge
into, or sell, convey,  transfer,  lease or other wise 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.

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 Compa ny 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
Signifi cant 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 de
clared 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  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 instrumen  tality 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 Inden ture, (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 NonConvertible 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 constitut
ing 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 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
acquisi tion 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
corpora tion 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
         consolida  tion 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;

                           (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  Corpora  tion 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 obliga tion 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 pro forma basis (and treating any  Indebtedness  which
         becomes an obliga tion 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  Cover age 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 immedi ately 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:

         (A)                                                        (B)     (C)

     1.11:1 to 1.99:1.........................................      100%   1.6:1
     2.00:1 to 2.99:1.........................................       90%   2.1:1
     3.00:1 to 3.99:1.........................................       80%   2.4:1
     4.00:1 or more...........................................       70%   2.5:1


                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  authenti  cate 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  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 accor dance 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
         agree  ments  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 hereun der;

                           (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
         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 instru ment, 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 dis charged within 20 days of the
         Company or a Restricted Subsidiary becom

                                        7

<PAGE>


         ing 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 credi
                           tors, or

                 (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 insol
vency;

                           (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.

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 rescis sion 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 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
Inden ture 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;

                           (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 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,  ex penses,  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 pay ment 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,  divi dends,  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  discre  tion  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 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
exten sion 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.  Howev er, the Trustee shall examine the  certificates
         and  opinions  to  determine   whether  or  not  they  conform  to  the
         requirements of this Indenture.

                  (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
         judg ment 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.

                  (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
responsi ble 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 of its selection, 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,  instru ment, 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
representa  tion  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 authenti  cation.  The Trustee  shall have no duty to
ascertain  or inquire  as to the  perfor  mance of the  Company's  covenants  in
Article III hereof.

SECTION 6.5 Notice of Defaults.

                  If a Default or an Event of Default  occurs and is  continuing
and if it is actually 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 of the Trustee has actual 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 Sec 313(a) if required by that Section.  The Trustee
also shall comply with TIA Sec 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 such
compensation for its services as the parties shall agree. The Trustee's compensa
tion 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  disburse ments 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  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 expens es 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 adminis
tration 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;

                  (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 resigna
tion  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 Sec  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
lished annual report of condition. The Trustee shall comply with TIA Sec 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 Sec 310(b).

SECTION 6.11  Preferential Collection of Claims Against Company.

                  The Trustee  shall  comply  with TIA Sec  311(a),  except with
respect to any creditor relationship listed in TIA Sec 311(b). A Trustee who has
resigned or been removed is subject to TIA Sec 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 irrevoca bly 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  accompa nied 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
depos its 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
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
Obli  gations  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 certif ication thereof delivered to the Trustee), without
consideration of any reinvest ment 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 hereun der, (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 in  strument  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 Secu rities.

                  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 in struments  acknowledging  the same, except as to (a) rights of
registration of transfer and exchange, (b) substitution of apparently mutilated,
defaced, de 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  para graph 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 irrevo  cably  instructed  to apply such money or
         the  proceeds of such U.S.  Gov ernment  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;

                           (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 Com
         pany)  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 Com pany 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
         Compa ny (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

                           (v) the  Company  has  delivered  to the  Trustee  an
         Officers'  Certificate and an Opinion of Counsel,  in each case stating
         that all condi  tions  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 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;

                           (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;

                      (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 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,
         reorganiza tion 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 condi  tions  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
Obliga tions 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
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  reason
ably  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 circula
tion 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, restrain
ing 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.


                                  ARTICLE VIII

                           AMENDMENTS AND SUPPLEMENTS

SECTION 8.1 Without Consent of Holders.

                  The Company and the  Trustee may amend this  Indenture  or the
Securities or enter into an indenture or indentures  supplemental  hereto (which
shall conform to the  provisions  of the Trust  Indenture Act as then in effect)
without  notice to or the consent of any  Securityholder  for one or more of the
following purposes:

                           (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 Securi
         ties 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 con
         nection with qualification of the Indenture under the TIA;

                      (g)  to make any change that does not adversely affect the
         rights of any Securityholder; or

                           (h)  to  provide  for  the  issuance  of   additional
         Securities in an aggregate  principal amount not to exceed $75,000,000;
         provided,  howev er,  the  aggregate  principal  amount  of  Securities
         outstanding at any time may not exceed $275,000,000.

                  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.

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;

                   (c)  reduce the principal of or change the Stated Maturity of
         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,
supple ment or waiver,  but it shall be sufficient if such consent  approves the
substance thereof.

                  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.

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
deter  mines,  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 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 connec tion 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 princi pal 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 satisfac tory 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  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 por
tions 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;

                           (c)  the name and address of the Paying Agent;

                           (d)  that Securities called for redemption must be 
         surrendered to the Paying Agent to collect the redemption price;

                           (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
         re demption  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
redemp  tion  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
re demption 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 cancel lation.

SECTION 9.6 Securities Redeemed in Part.

                  Upon  surrender  of a Security  that is redeemed in part,  the
Compa ny shall execute and the Trustee shall authenticate for the Holder (at the
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 Secs 310 to 317,  inclusive,
through operation of TIA Sec 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),
ad dressed as follows:

                  if to the Company:

                  Calpine Corporation
                  50 West San Fernando Street
                  San Jose, California  95113
                  Attention:  Corporate Secretary


                  if to the Trustee:

                  The Bank of New York
                  101 Barclay Street, Floor 21 West
                  New York, New York 10271
                  Attention:  Corporate Trust Administration

                  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.

                  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 Sec 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 Sec 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
         reason ably 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
         reason ably 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.

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.

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 Inden
ture 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, 1997.

          The reporting date for Section 6.6 is July 15 of each year.  The first
reporting date is July 15, 1998.

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.



0173469.05-01S6a
                                                    8

<PAGE>




                                   SIGNATURES



                                                CALPINE CORPORATION


                                                By
                                                              Name:
                                                              Title:




                                                THE BANK OF NEW YORK,
                                                            as Trustee


                                                By
                                                              Name:
                                                              Title:

Dated:  July 8, 1997



                                        9

<PAGE>



                                    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  REPRESENTA TIVE 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 TRANS FERS 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
ACQUISI  TION  HEREOF,  THE HOLDER (1)  REPRESENTS  THAT (A) IT IS A  "QUALIFIED
INSTITUTIONAL  BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURI TIES ACT) OR (B)
IT IS  NOT  A  U.S.  PERSON  AND  IS  ACQUIRING  THIS  SECURITY  IN AN  OFFSHORE
TRANSACTION  IN  COMPLIANCE  WITH REGULA TION S UNDER THE  SECURITIES  ACT,  (2)
AGREES  THAT IT WILL  NOT,  WITHIN  TWO 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) OUTSIDE THE UNITED  STATES IN AN OFFSHORE  TRANSACTION  IN COMPLI ANCE
WITH RULE 904 UNDER THE  SECURITIES  ACT,  (D)  PURSUANT TO THE  EXEMPTION  FROM
REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (E)
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 LEG
END.  IN CONNECTION WITH ANY TRANSFER OF THIS SECURITY WITHIN TWO 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. 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.


- --------
         This legend  should only be added if the Security is issued as a Global
Note.

                                       A-1

<PAGE>


                               CALPINE CORPORATION
                           8 3/4% Senior Note Due 2007

No. S-1                                                             $200,000,000

                                                            CUSIP:     131347AE6
                                                         ISIN:      US131347AE66

         Calpine Corporation, a Delaware corporation,  promises to pay to Cede &
Co., or registered assigns,  the principal sum of Two Hundred Million Dollars on
July 15, 2007.

                 Interest Payment Dates: January 15 and July 15
                       Record Dates: January 1 and July 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:


                                                          By
                                                              Name:
                                                              Title:

TRUSTEE'S CERTIFICATE
  OF AUTHENTICATION:

The Bank of New York, as Trustee,  certifies  that this is one of the Securities
referred to in the Indenture.

By: _________________________                      Dated: ______________________
        Authorized Signature

                      (Form of Reverse of Initial Security)

                               Calpine Corporation
                           8 3/4% Senior Note Due 2007


                  (1)  Interest.  Calpine  Corporation,  a Delaware  corporation
(such corpora tion, 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 8 3/4% per annum (subject to adjustment as
provided  below).  The Company will pay interest  semiannually on January 15 and
July 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 July 8, 1997.  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  July 1, 1997 by and  among the  Company,
Credit  Suisse  First Boston  Corporation,  Morgan  Stanley & Co.  Incorporated,
Salomon  Brothers  Inc  and  Scotia  Capital  Markets  (USA)  Inc.,  BancAmerica
Securities,  Inc. and CIBC Wood Gundy Securities Corp. interest due per annum on
the Securities  shall be permanently  increased by one-half of one percent,  com
mencing as of January 5, 1998 (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, The Bank of New York, a New
York banking corporation (the "Trustee"), will act as Paying Agent and 
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.

                  (4)  Indenture.  The Company issued the Securities under an 
Indenture dated as of July 8, 1997 (the "Indenture") between the Company and the
 Trustee.  The Securities  are  unsecured  general   obligations  of  the  
Company  limited  to $275,000,000 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 
Secs 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 July 15, 2002. 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 July 15,

                  Year                                      %

                  2002   . . . . . . . . . .              104.3750%
                  2003   . . . . . . . . . .              102.1875%
                  2004 and thereafter . .                   100.000%

                  The Company may redeem up to $70,000,000  principal  amount of
Securi ties 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 108.75% if redeemed at any time prior to
July 15, 2000.

                  (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 Securi ties 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 re demption 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.

                  (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.

                  (8) Put Provisions. Upon a Change of Control Triggering Event,
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 incon  sistency,  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  limita  tions,
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.

                  (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 The Bank of New York.

                  (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-2

<PAGE>





                                 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:

Signatures must be guaranteed by an "eligible guarantor institution" meeting the
requirements  of  the  Registrar,   which  requirements  include  membership  or
participation in the Security Transfer Agent Medallion Program ("STAMP") or such
other  "signature  guarantee  program" as may be  determined by the Registrar in
addition  to,  or in  substitution  for,  STAMP,  all  in  accordance  with  the
Securities Exchange Act of 1934, as amended.

                                        MANNER OF TRANSFER (Check one)

Transfer to Calpine Corporation                                        o
Transfer to Qualified Institutional Buyer                              o
Transfer outside the United States in
  compliance with Rule 904 under
  the Securities Act of 1993                                           o


                                    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:

Signatures must be guaranteed by an "eligible guarantor institution" meeting the
requirements  of  the  Registrar,   which  requirements  include  membership  or
participation in the Security Transfer Agent Medallion Program ("STAMP") or such
other  "signature  guarantee  program" as may be  determined by the Registrar in
addition  to,  or in  substitution  for,  STAMP,  all  in  accordance  with  the
Securities Exchange Act of 1934, as amended.


                                       A-3

<PAGE>



                                    EXHIBIT B


                                      (Form of Face of Exchange 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 legend  should only be added if the Security is issued as a Global
Note.

                                       B-1

<PAGE>




                               CALPINE CORPORATION
                           8 3/4% Senior Note Due 2007


                                No. $200,000,000

                                CUSIP: 131347AE6
                               ISIN: US131347AE66

         Calpine Corporation, a Delaware corporation,  promises to pay to Cede &
Co., or registered assigns,  the principal sum of Two Hundred Million Dollars on
July 15, 2007.

                                Interest Payment Dates:  January 15 and July 15
                                      Record Dates:  January 1 and July 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:

                                                          By
                                                              Name:
                                                              Title:

TRUSTEE'S CERTIFICATE
  OF AUTHENTICATION:

The Bank of New York, as Trustee,  certifies  that this is one of the Securities
referred to in the Indenture.

By: _________________________                       Dated: ____________________
        Authorized Signature


                                       B-2

<PAGE>



                       (Form of Back of Exchange Security)

                               Calpine Corporation
                           8 3/4 Senior Note Due 2007


                  (1) Interest.  Calpine Corporation,  a California  corporation
(such corpora tion, 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 8 3/4 per annum.  The  Company  will pay
interest  semiannually  on January 15 and July 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 July 8, 1997.  Interest will be computed
on the basis of a 360-day year consisting of twelve 30-day months.

                  (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,  The Bank of New
York, a New York banking  corporation (the "Trustee"),  will act as Paying Agent
and  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.

                  (4)  Indenture.  The Company  issued the  Securities  under an
Indenture dated as of July 8, 1997 (the "Indenture") between the Company and the
Trustee. The Securities are unsecured general obligations of the Company limited
to  $275,000,000  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 Secs  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 July 15, 2002. 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 July 15,

                  Year                                      %

                  2002   . . . . . . . . . .              104.3750%
                  2003   . . . . . . . . . .              102.1875%
                  2004, and thereafter . .                  100.00%

                  The Company may redeem up to $70,000,000  principal  amount of
Securities with the proceeds of one or more Public Equity  Offerings 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 108.75% if
redeemed at any time prior to July 15, 2000.

                  (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.

                  (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.

                  (8) Put Provisions. Upon a Change of Control Triggering Event,
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 Securi ties 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.

                    (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 The
Bank of New York.

                    (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.

- --------
         9 1/4% if the exchange offer is not consummated before January 5, 1998.

                                       B-3

<PAGE>





                                 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:

Signatures must be guaranteed by an "eligible guarantor institution" meeting the
requirements  of  the  Registrar,   which  requirements  include  membership  or
participation in the Security Transfer Agent Medallion Program ("STAMP") or such
other  "signature  guarantee  program" as may be  determined by the Registrar in
addition  to,  or in  substitution  for,  STAMP,  all  in  accordance  with  the
Securities Exchange Act of 1934, as amended.


                     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:

Signatures must be guaranteed by an "eligible guarantor institution" meeting the
requirements  of  the  Registrar,   which  requirements  include  membership  or
participation in the Security Transfer Agent Medallion Program ("STAMP") or such
other  "signature  guarantee  program" as may be  determined by the Registrar in
addition  to,  or in  substitution  for,  STAMP,  all  in  accordance  with  the
Securities Exchange Act of 1934, as amended.

                                       B-4

<PAGE>



                                    EXHIBIT C

                       Form of Certificate to be Delivered
                           In Connection with Transfer
                              Pursuant to Rule 144A

The Bank of New York, as Depositary
101 Barclay Street, Floor 21 West
New York, NY  10286
Attention:  Corporate Trust Trustee Administration

         Re:      Calpine Corporation (the "Company")
                  8 3/4% Senior Notes due 2007 (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 a transaction  meeting the  requirements  of
Rule 144A under the  Securities  Act of 1933, as amended (the "Act").  We hereby
certify that we are and the transferee is a "qualified  institutional buyer" (as
defined in Rule 144A  under the Act) and that we are acting for our own  account
or  for  the  account  of one  or  more  qualified  institutional  buyers,  and,
accordingly,  we agree  (or if we were  acting  for the  account  of one or more
qualified  institutional  buyers,  each such qualified  institutional  buyer has
confirmed to us that it agrees) that we or the transferee will not offer,  sell,
pledge or otherwise  transfer the Notes except (A) to a Person who we reasonably
believe (or the transferee and anyone acting on its behalf reasonably  believes)
is a qualified  institutional buyer in a transaction meeting the requirements of
Rule 144A,  or (B) pursuant to the  exemption  from  registration  under the Act
provided  by Rule  144 (if  available),  in each  case in  accordance  with  any
applicable securities laws of the states of the United States.

                  If we are a  broker-dealer,  we  further  certify  that we are
acting for the account of our customer and that our customer has  confirmed  the
accuracy  of the  representations  contained  herein that are  applicable  to it
(including the representations with respect to beneficial ownership).

                  This certificate and the statements  contained herein are made
for the benefit of the Company  and the Initial  Purchasers.  Terms used in this
certificate  and not otherwise  defined in the  Indenture  have the meanings set
forth in Regulation S under the Securities Act.

Dated:                                      [Insert Name of Transferor]

                                                     By:
                                                           Name:
                                                           Title:


                                       C-1

<PAGE>



                                    EXHIBIT D

                       Form of Certificate to Be Delivered
                          in Connection with Transfers
                            Pursuant to Regulation S

                                -----------, ----

The Bank of New York
101 Barclay Street
New York, New York 10026
Attention:  Corporate Trust Department

Calpine Corporation
50 West San Fernando Street
San Jose, California  95113
Attention:  Corporate Secretary

         Re:      Calpine Corporation (the "Company")
                  8 3/4% Senior Notes Due 2007 (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.

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

                                       D-1

<PAGE>











                               CALPINE CORPORATION


                                       and

                          THE BANK OF NEW YORK, Trustee




                                    Indenture

                            Dated as of July 8, 1997




                                  $275,000,000

                          8 3/4% Senior Notes Due 2007



                                       D-2

<PAGE>




                                    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.....  23
         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........................... 27
         SECTION 2.3  Registrar and Paying Agent............................. 28
         SECTION 2.4  Paying Agent To Hold Money in Trust.................... 29
         SECTION 2.5  Securityholder Lists................................... 30
         SECTION 2.6  Transfer and Exchange.................................. 30
         SECTION 2.7  Book-Entry Provisions for Global Note.................. 31
         SECTION 2.8  Special Transfer Provisions............................ 32
         SECTION 2.9  Replacement Securities................................. 34
         SECTION 2.10  Outstanding Securities................................ 34
         SECTION 2.11  Determination of Holders' Action...................... 35
         SECTION 2.12  Temporary Securities.................................. 35
         SECTION 2.13  Cancellation.......................................... 35
         SECTION 2.14  Defaulted Interest.................................... 36

                                   ARTICLE III

COVENANTS.................................................................... 36

         SECTION 3.1  Payment of Securities.................................. 36
         SECTION 3.2  Maintenance of Office or Agency........................ 37
         SECTION 3.3  Limitation on Restricted Payments...................... 37
         SECTION 3.4  Limitation on Incurrence of Indebtedness............... 41
         SECTION 3.5  Limitation on Payment Restrictions Affecting 
                      Subsidiaries........................................... 43
         SECTION 3.6  Limitation on Sale/Leaseback Transactions.............. 44
         SECTION 3.7  Limitation on Liens.................................... 45
         SECTION 3.8  Change of Control...................................... 47
         SECTION 3.9  Compliance Certificate................................. 49
         SECTION 3.10  SEC Reports........................................... 50
         SECTION 3.11  Transactions with Affiliates.......................... 50
         SECTION 3.12  Sales of Assets....................................... 51
         SECTION 3.13  Corporate Existence................................... 55
         SECTION 3.14  Payment of Taxes and Other Claims..................... 56
         SECTION 3.15  Notice of Defaults and Other Events................... 56
         SECTION 3.16  Maintenance of Properties and Insurance............... 57
         SECTION 3.17  Limitation on Issuance of Capital Stock and Incurrence
                                of Indebtedness of Restricted Subsidiaries... 57
         SECTION 3.18  Limitation on Changes in the Nature of the Business... 58
         SECTION 3.19  Limitation on Subsidiary Investments.................. 58

                                   ARTICLE IV

CONSOLIDATION, MERGER AND SALE............................................... 59

         SECTION 4.1  Merger and Consolidation of Company. .................. 59
         SECTION 4.2  Successor Substituted.................................. 61

                                    ARTICLE V

DEFAULTS AND REMEDIES........................................................ 62

         SECTION 5.1  Events of Default...................................... 62
         SECTION 5.2  Acceleration........................................... 64
         SECTION 5.3  Other Remedies......................................... 65
         SECTION 5.4  Waiver of Past Defaults................................ 65
         SECTION 5.5  Control by Majority.................................... 65
         SECTION 5.6  Limitation on Suits.................................... 66
         SECTION 5.7  Rights of Holders To Receive Payment................... 67
         SECTION 5.8  Collection Suit by Trustee............................. 67
         SECTION 5.9  Trustee May File Proofs of Claim....................... 67
         SECTION 5.10  Priorities............................................ 68
         SECTION 5.11  Undertaking for Costs................................. 68
         SECTION 5.12  Waiver of Stay or Extension Laws...................... 68

                                   ARTICLE VI

TRUSTEE...................................................................... 69

         SECTION 6.1  Duties of Trustee...................................... 69
         SECTION 6.2  Rights of Trustee...................................... 70
         SECTION 6.3  Individual Rights of Trustee........................... 71
         SECTION 6.4  Trustee's Disclaimer................................... 71
         SECTION 6.5  Notice of Defaults..................................... 71
         SECTION 6.6  Reports by Trustee to Holders.......................... 72
         SECTION 6.7  Compensation and Indemnity............................. 72
         SECTION 6.8  Replacement of Trustee................................. 73
         SECTION 6.9  Successor Trustee by Merger, etc....................... 74
         SECTION 6.10  Eligibility; Disqualification......................... 74
         SECTION 6.11  Preferential Collection of Claims Against Company.  .. 74

                                   ARTICLE VII

SATISFACTION AND DISCHARGE OF INDENTURE...................................... 75

         SECTION 7.1  Discharge of Liability on Securities; Defeasance....... 75
         SECTION 7.2  Termination of Company's Obligations................... 75
         SECTION 7.3  Defeasance and Discharge of Indenture.................. 76
         SECTION 7.4  Defeasance of Certain Obligations...................... 79
         SECTION 7.5  Application of Trust Money............................. 81
         SECTION 7.6  Repayment to Company................................... 81
         SECTION 7.7  Reinstatement.......................................... 82

                                  ARTICLE VIII

AMENDMENTS AND SUPPLEMENTS................................................... 82

         SECTION 8.1  Without Consent of Holders............................. 82
         SECTION 8.2  With Consent of Holders................................ 83
         SECTION 8.3  Compliance with Trust Indenture Act.................... 84
         SECTION 8.4  Revocation and Effect of Consents...................... 84
         SECTION 8.5  Notation on or Exchange of Securities.................. 85
         SECTION 8.6  Trustee To Sign Amendments............................. 85
         SECTION 8.7  Fixing of Record Dates................................. 85

                                   ARTICLE IX

REDEMPTION................................................................... 86

         SECTION 9.1  Notices to Trustee..................................... 86
         SECTION 9.2  Selection of Securities To Be Redeemed................. 86
         SECTION 9.3  Notice of Redemption................................... 87
         SECTION 9.4  Effect of Notice of Redemption......................... 88
         SECTION 9.5  Deposit of Redemption Price............................ 88
         SECTION 9.6  Securities Redeemed in Part............................ 88

                                    ARTICLE X

MISCELLANEOUS................................................................ 88

         SECTION 10.1  Trust Indenture Act Controls.......................... 88
         SECTION 10.2  Notices............................................... 89
         SECTION 10.3  Communication by Holders with Other Holders........... 90
         SECTION 10.4  Certificate and Opinion as to Conditions Precedent.... 90
         SECTION 10.5  Statements Required in Certificate or Opinion......... 90
         SECTION 10.6  Rules by Trustee and Agents........................... 91
         SECTION 10.7  Legal Holidays........................................ 91
         SECTION 10.8  Successors; No Recourse Against Others................ 91
         SECTION 10.9  Duplicate Originals................................... 91
         SECTION 10.10  Other Provisions..................................... 92
         SECTION 10.11  Governing Law........................................ 92

SIGNATURES................................................................... 93

EXHIBIT A....................................................................A-1

EXHIBIT B....................................................................B-1

EXHIBIT C....................................................................C-1

EXHIBIT D....................................................................D-1



                                        i

<PAGE>



                          REGISTRATION RIGHTS AGREEMENT


                            Dated as of July 1, 1997


                                 by and between


                               CALPINE CORPORATION


                                       and


                     CREDIT SUISSE FIRST BOSTON CORPORATION

                        MORGAN STANLEY & CO. INCORPORATED

                              SALOMON BROTHERS INC

                        SCOTIA CAPITAL MARKETS (USA) INC.

                          BANCAMERICA SECURITIES, INC.

                        CIBC WOOD GUNDY SECURITIES CORP.

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


                          8 3/4% Senior Notes Due 2007


                                        1

<PAGE>


                          REGISTRATION RIGHTS AGREEMENT


                  This  Registration  Rights Agreement (the "Agreement") is made
and  entered  into as of July 1,  1997,  by and  among  Calpine  Corporation,  a
Delaware   corporation   (the   "Company"),   and  Credit  Suisse  First  Boston
Corporation,  Morgan Stanley & Co.  Incorporated,  Salomon  Brothers Inc, Scotia
Capital  Markets (USA) Inc.,  BancAmerica  Securities,  Inc. and CIBC Wood Gundy
Securi ties Corp. (the "Purchasers").

                  This  Agreement is made  pursuant to the Purch ase  Agreement,
dated of even date herewith (the "Purch ase Agreement"), between the Company and
the Purchasers, which provides for the sale by the Company to the Pur chasers of
an aggregate of  $200,000,000  principal  amount of the  Company's 8 3/4% Senior
Notes Due 2007 (the "Senior Notes").  In order to induce the Purchasers to enter
into the Purchase Agreement,  the Company has agreed to provide the registration
rights  set forth in this Agree  ment.  The  execution  of this  Agreement  is a
condition to the Closing under the Purchase Agreement.

                                   The parties hereby agree as follows:

1.        Definitions

                  Capitalized  terms used herein  without defini tion shall have
their respective meanings set forth in the Purchase  Agreement.  As used in this
Agreement, the following terms shall have the following meanings:

                  Advice:  See Section 4(o).

                  Closing Date:  July 8, 1997, or such other
date as may be agreed upon for the sale and purchase of
the Senior Notes pursuant to the Purchase Agreement.

                  Company:  Calpine Corporation, a Delaware
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.

                  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 regis
tration statement, in each case including the Prospectus
contained therein, all exhibits thereto and all material
incorporated by reference or deemed to be 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 in an  Exchange  Offer and (ii) shall
have an  interest  rate of 8 3/4% per annum (9 1/4% per  annum if such  Exchange
Offer is not consummated by January 4, 1998),  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 July 8, 1997,  between
the Company and The Bank of New York,  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
regis tration statement in reliance upon Rule 430A), as amend ed 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 Prospec tus,  including  post-effective  amendments  and all
materi al  incorporated  by reference or deemed to be incorporat ed 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 Ex change Notes or  Registrable
Securities  pursuant  to  the  provisions  of  this  Agreement,   including  the
Prospectus,   amendments  and  supplements  to  such  registration  state  ment,
including post-effective amendments, all exhibits, and all material incorporated
by reference  or deemed to be  incorporated  by  reference in such  registration
state ment.

                  Restricted Securities:  Any and all Senior Notes upon original
issuance  thereof and at all times  subsequent  thereto 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 State ment 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 ex changed 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 LLP,
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 bene
fits 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 Regis  trable  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 pursu ant to this Agreement.

3.        Shelf Registrations; Exchange Offers

                           (a)      Shelf Registrations.   As promptly
as  practicable  and in no event later than December 1, 1997,  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 Registra ble Securities (the "Shelf Registration").

                           (b)      The Shelf Registration shall be on
Form  S-1  or  another   appropriate  form  permitting  regis  tration  of  such
Registrable  Securities  for  resale by such  holders  in the  manner or manners
designated by them.

                           (c)      The Company shall use its best ef
forts to cause the Shelf  Registration to become effec tive under the Securities
Act in accordance with Section 3(a) hereof and shall keep the Shelf Registration
con tinuously  effective for a period of two 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 Compa ny, 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
Regis tration 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 January 4, 1998 and to have
such Registration Statement remain effective until the
closing of the Exchange Offer.  The Company shall com

mence  the  Exchange  Offer  promptly  after  the  Exchange  Offer  Registration
Statement has been declared effective by the SEC by mailing the related exchange
offer Pro  spectus and  accompanying  documents  to each holder of Senior  Notes
stating, in addition to such other disclo sures 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 re tain any rights under this Agreement;

                                    (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 insti tution
         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 Ex change 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 princi pal amount
         of Registrable  Securities  delivered for exchange and a statement that
         such holder is with

                                                    1

<PAGE>


         drawing its election to have such Senior Notes ex
         changed.

                  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 deliv
         ered, to the Trustee for  cancellation  all Registra ble  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 com  plete  the
Exchange   Offer  as  provided  above  and  shall  comply  with  the  applicable
requirements of the Securi ties 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 Ex change 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  contains  statements  and
representations sub stantially in the form set forth in Mary Kay Cosmetics, Inc.
(no-action  letter  available June 5, 1991),  Morqan 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 January 4, 1998,  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 Regis  tration  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 hold ers  thereof  in  accordance  with the
intended method or methods of distribution thereof, and use its best ef forts to
cause each such Registration  Statement to become effective and remain effective
as  provided  here in;  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 amend ments 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
(includ ing such documents which, upon filing,  would be incorpo rated 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 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 Regis tration 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 Securi ties Act;

                           (c)      notify the selling holders of Regis
trable  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 Prospec tus  supplement or
post-effective  amendment related to such Registrable Securities has been filed,
and, with respect to a Registration  Statement or any post-effec  tive 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  infor mation,  (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 re  ceipt 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  circum  stances  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  effec  tiveness  of  a
Registration Statement or the lifting of any 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,  as promptly as
practicable;

                           (e)      if reasonably requested by any
holder of  Registrable  Securities  covered by a Registra  tion  Statement,  (i)
promptly incorporate in a Prospectus supplement or post-effective amendment such
information as such holder reasonably requests to be included there in 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 State ments and any post-effective  amendment  thereto,  includ ing
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 pre liminary 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
Regis  trable  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 ex
change  of  Registrable  Securities,  to use its best ef forts  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 during the period such Registration  Statement is
required to be kept effective and do any and all other acts or things neces sary
or advisable to enable the disposition in such  jurisdictions of the Registrable
Securities covered by the applicable Registration Statement; provided, howev er,
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  Secu rities to facilitate the
timely  preparation  and  delivery  of  certificates   representing  Registrable
Securities  to be sold,  which  certificates  shall  not bear any  restric  tive
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  Regis  tration  Statement to be  registered  with or
approved by such other federal, state and local governmental regula
tory 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
Securi  ties and  cooperate  with  each  seller  of  Registrable  Securities  in
connection with any filings required to be made with the National Association of
Securities Deal ers, Inc.;

                           (k)  upon the occurrence of any event
contemplated  by  Section   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) in order to  expedite or
facilitate the disposition of such  Registrable Secu rities  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,  Pro  spectus 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 reason ably  satisfactory to
Special Counsel) addressed to each selling holder and underwriter of Registrable
Securi ties,  covering the matters customarily covered in opin ions 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 Registra
tion 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  connec  tion  with
underwritten offerings,  and (iv) deliver such documents and certificates as may
be reasonably request ed 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  con  tained 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 hold ers, in a manner designed to permit  underwriters to sat isfy their
due diligence  investigation  under the Securi ties 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,  attor
ney or accountant in connection with such registration;  provided, however, that
any records,  information  or documents  that are  designated  by the Company as
confi dential at the time of delivery of such records, infor mation or documents
shall be kept confidential by such persons, unless (i) such records, information
or docu ments 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 counsel to such  person,  is  otherwise
required by law (including, without limitation,  pursuant to the requirements of
the  Securi  ties  Act) or (iv)  disclosure  of such  records,  informa  tion 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 gov erning 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 accor dance with the
terms of the TIA and  execute,  and use its best efforts to cause the trustee to
execute, all docu ments 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),  com mencing 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 Regis trable Securities
under a Shelf Registration to furnish to the Company such information  regarding
the distribu tion 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 Registra ble
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 appli  cable  Prospectus  may be
resumed, and has received copies of any additional or 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 (in  cluding  reasonable  fees and  disbursements  of  counsel  for any
underwriters or holders in connection with blue sky  qualification of any of the
Exchange Notes or Regis

trable 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 Registra ble  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 dis counts 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  harm  less the
Purchasers and each holder of Registrable  Secu rities and each person,  if any,
who controls the Pur chasers 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
(includ ing, 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 mate  rial  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  Purchas ers 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 participat ing, 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 reason
ably incurred in connection  with defending or investi gating 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  State ment, any
preliminary prospectus, the Prospectus or any amendments or supplements thereto.

                  The Purchasers agree, severally and not joint ly, 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 Regis tration
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 Securi  ties Act or  Section 20 of the  Exchange  Act from and
against any and all losses, claims, damages and liabili ties (including, without
limitation,  any legal or other expenses  reasonably incurred in connection with
defend  ing 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 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 amend ments or supplements thereto.

                  In  case  any   proceeding   (including   any  govern   mental
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
indemnify ing party, upon request of the indemnified party, shall retain counsel
reasonably  satisfactory  to the indemni fied 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 indemni fied
party shall have  mutually  agreed to the  retention of such counsel or (ii) the
parties to any such proceed ing (including any impleaded  parties)  include both
the  indemnifying  party and the  indemnified  party and repre sentation 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 jurisdic tion, be liable for (a) the fees and expenses of more than one
separate firm (in addition to any local coun

                                        2

<PAGE>



sel) for the  Purchasers  and all persons,  if any,  who control the  Purchasers
within the meaning of either Sec tion 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 Regis  tration  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  Credit  Suisse  First  Boston
Corporation.  In such case involving the holders of Registrable  Secu rities and
such controlling persons of holders of Regis trable 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 designated by
the Company.  The indemnifying  party shall not be liable for any settle ment 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  settle  ment or  judgment.  Notwithstanding  the
foregoing sen tence, if at any time an indemnified party shall have requested an
indemnifying  party to reimburse the indem nified party for fees and expenses of
counsel as contem  plated by the second and third  sentences of this para graph,
the indemnifying  party agrees that it shall be liable for any settlement of any
proceeding  effected  without its written  consent,  provided  that (i) such set
tlement 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  indemni  fying  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 indemni fied party,  effect any settlement of any pending
or threatened proceeding in respect of which any indemni
fied 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  propor tion 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 result ed in such losses, claims,  damages or liabilities,  as
well as any other relevant equitable  considerations.  The relative fault of the
holders of  Registrable  Securi ties 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.

                  The  parties  hereto  agree  that  it  would  not be  just  or
equitable if  contribution  pursuant to this Sec tion 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  immedi  ately  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 al leged omission.  No person guilty of
fraudulent  misrep  resentation  (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 misrep resentation.  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 indem nified party at law or in equity.

                  The indemnity and  contribution  provisions con tained 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
grant ed by law,  including  recovery of damages,  will be enti tled 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  Agree  ment,  enter into any
agreement with respect to its secu rities 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 provi
sions of this Agreement, including the provisions of
this sentence, may not be amended, modified or supple
mented, 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
majori ty 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  Secu rities 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 com
munications  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 7(d),  which
         address ini tially is, with respect to the Purchasers, the ad dress set
         forth on the first page of the Purchase Agreement; and

                                    (ii)     if to the Company, initially
         at its  address set forth on the first page of the  Purchase  Agreement
         and  thereafter  by such  other  address,  notice  of which is given in
         accordance with the provision of this Section 7(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 re ceipt 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 Inden ture at the address specified in such Indenture.

                           (e)      Successors and Assigns.  This Agree
ment shall inure to the benefit of and be binding upon
the successors and assigns of each of the parties, in

                                        3

<PAGE>



cluding  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 par ties 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, provi
sion,  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,
provi sions,  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 substantial ly the same result as that
contemplated  by such term,  provision,  covenant or  restriction.  It is hereby
stipu lated 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  exclu  sive  statement  of the  agreement  and
understanding  of the parties hereto in respect of the subject matter con tained
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 secu rities sold  pursuant to
the Purchase Agreement. This Agreement supersedes all prior agreements and under

                                        4

<PAGE>



standings 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,  Registrable Securities held by the Company or
any of its affiliates (as such term is de fined 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  whether  such  consent or approval was given by the holders of such
required percentage or amount.


                                        5

<PAGE>



                  IN WITNESS  WHEREOF,  the parties have executed this Agreement
as of the date first written above.

                                    CALPINE CORPORATION



                      By:_________________________________
                                      Name:
                                       Title:


                                    CREDIT SUISSE FIRST BOSTON CORPORATION
                                    MORGAN STANLEY & CO. INCORPORATED
                                    SALOMON BROTHERS INC
                                    SCOTIA CAPITAL MARKETS (USA) INC.
                                    BANCAMERICA SECURITIES, INC.
                                    CIBC WOOD GUNDY SECURITIES CORP.

                                    By:  CREDIT SUISSE FIRST BOSTON
                                              CORPORATION



                      By:_________________________________
                                      Name:
                                       Title:


                                        6











                                U.S. $125,000,000



                                CREDIT AGREEMENT,



                           dated as of June 23, 1997,



                                      among



                            CALPINE FINANCE COMPANY,

                                as the Borrower,



                                       and

                    CERTAIN COMMERCIAL LENDING INSTITUTIONS,

                                 as the Lenders,



                                       and



                             THE BANK OF NOVA SCOTIA


                          as the Agent for the Lenders.



<PAGE>

                                CREDIT AGREEMENT


         THIS CREDIT AGREEMENT, dated as of June 23, 1997, among
CALPINE FINANCE COMPANY, a Delaware corporation (the "Borrower"),
the various financial institutions as are or may become parties
hereto (collectively, the "Lenders"), and THE BANK OF NOVA SCOTIA
("Scotiabank"), as agent (the "Agent") for the Lenders,

                              W I T N E S S E T H:

         WHEREAS, pursuant to a Purchase and Sale Agreement, dated as
of March 27, 1997 (as so originally executed and delivered, the
"Purchase Agreement"), between the Borrower and Enron Power
Corp., a Delaware corporation ("Seller"), Seller has agreed to
sell, and the Borrower has agreed to purchase, 7,095 shares of
Class A Common Stock of Enron/Dominion Cogen Corp., a Delaware
corporation ("EDCC"), constituting all of the issued and
outstanding shares of Class A Common Stock of EDCC (the "Stock
Purchase"), which constitutes 50% of the total issued and
outstanding shares of capital stock of EDCC, the other 50% being
held by Dominion Cogen, Inc., a Virginia corporation
("Dominion");

         WHEREAS, EDCC owns 100% of the issued and outstanding stock
of Enron Cogeneration One Company, a Delaware corporation
("EC1"), which in turn owns 100% of the issued and outstanding
stock of Cogenron Inc., a Delaware corporation ("Cogenron");

         WHEREAS, EDCC owns a 98% limited partnership interest in
Clear Lake Cogeneration Limited Partnership, a Texas limited
partnership ("Clear Lake") and 100% of Enron Cogeneration Three
Company, a Delaware corporation ("EC3") which owns a 2% general
partnership interest in Clear Lake;

         WHEREAS, the Borrower has acquired all of the project
financed indebtedness of Cogenron incurred pursuant to the Credit
Agreement dated as of January 17, 1991 among Cogenron, Cogenron
Funding Corp., a Delaware corporation, the lenders named therein
(the "Cogenron Lenders") and The Bank of New York, as agent
("BONY") (the "Cogenron Credit Agreement") pursuant to an
Assignment Agreement dated June 23, 1997 among the Borrower, BONY
and the Cogenron Lenders (the "Cogenron Debt Acquisition");

         WHEREAS, the Borrower has acquired all of the project
financed indebtedness of Clear Lake incurred pursuant to the
Amended and Restated Credit Agreement dated as of January 18,
1994 among Clear Lake, the lenders named therein (the "Clear Lake
Lenders") and Barclays Bank plc, as Agent ("Barclays") (the
"Clear Lake Credit Agreement") pursuant to an Assignment
Agreement dated June 23, 1997 among the Borrower, Barclays and


                                       -1-
<PAGE>

the Clear Lake Lenders (the "Clear Lake Debt Acquisition") (the
Cogenron Debt Acquisition and the Clear Lake Debt Acquisition are
referred to herein collectively as the "Debt Acquisitions") (the
Stock Purchase and the Debt Acquisitions are referred to
collectively as the "Transaction");

         WHEREAS, EDCC owns 100% of the issued and outstanding stock
of Enron Cogeneration Five Company, a Delaware corporation
("EC5"), which in turn owns a 7.06% joint venture interest in
Cogen Technologies NJ Venture, a New Jersey joint venture ("Cogen
Venture");

         WHEREAS, pursuant to the Reorganization Agreement, Dominion
receives all the economic benefits and undertakes all the
liabilities with respect to EDCC's indirect interest in Cogen
Venture;

         WHEREAS, in connection with the Transaction, the Borrower
desires to obtain Commitments from the Lenders pursuant to which
Loans, in a maximum aggregate principal amount not to exceed
$125,000,000, will be made to the Borrower on the closing date;
and

         WHEREAS, the Lenders are willing, on the terms and subject
to the conditions hereinafter set forth (including Article V), to
extend such Commitments and make such Loans to the Borrower; and

         WHEREAS, the proceeds of such Loans will be used

                  (a)  to finance a portion of the Stock Purchase, in an
         amount not to exceed $35,450,000 as adjusted pursuant to the
         Purchase Agreement;

                  (b)  to finance a portion of the Cogenron Debt
         Acquisition, in a principal amount not to exceed $52,999,300
         (plus accrued interest);

                  (c)  to finance a portion of the Clear Lake Debt
         Acquisition, in a principal amount not to exceed
         $102,622,665 (plus accrued interest); and

                  (d)  to finance a portion of the expenses incurred in
         connection with the Transaction, in an amount not to exceed
         $3,500,000;

         NOW, THEREFORE, the parties hereto agree as follows:




                                       -2-
<PAGE>

                                    ARTICLE I

                        DEFINITIONS AND ACCOUNTING TERMS

         SECTION 1.1.  Defined Terms.  The following terms (whether
or not underscored) when used in this Agreement, including its
preamble and recitals, shall, except where the context otherwise
requires, have the following meanings (such meanings to be
equally applicable to the singular and plural forms thereof):

         "Affiliate" of any Person means any other Person which,
directly or indirectly, controls, is controlled by or is under
common control with such Person (excluding any trustee under, or
any committee with responsibility for administering, any Plan).
A Person shall be deemed to be "controlled by" any other Person
if such other Person possesses, directly or indirectly, power

                  (a)  to vote 10% or more of the securities (on a fully
         diluted basis) having ordinary voting power for the election
         of directors or managing general partners; or

                  (b)  to direct or cause the direction of the management
         and policies of such Person whether by contract or
         otherwise.

         "Agent" is defined in the preamble and includes each other
Person as shall have subsequently been appointed as the successor
Agent pursuant to Section 9.4.

         "Agreement" means, on any date, this Credit Agreement as
originally in effect on the Effective Date and as thereafter from
time to time amended, supplemented, amended and restated, or
otherwise modified and in effect on such date.

         "Alternate Base Rate" means, on any date and with respect to
all Base Rate Loans, a fluctuating rate of interest per annum
equal to the higher of

                  (a)  the rate of interest most recently announced by
         Scotiabank at its Domestic Office as its base rate; and

                  (b)  the Federal Funds Rate most recently determined by
         the Agent plus 1/2 of 1%.

The Alternate Base Rate is not necessarily intended to be the
lowest rate of interest determined by the Scotiabank in
connection with extensions of credit.  Changes in the rate of
interest on that portion of any Loans maintained as Base Rate
Loans will take effect simultaneously with each change in the
Alternate Base Rate.  The Agent will give notice promptly to the
Borrower and the Lenders of changes in the Alternate Base Rate.


                                       -3-
<PAGE>

         "Asset Sale" means any sale, assignment, transfer or other
disposition of any Property (whether now owned or hereafter
acquired) by the Borrower or any of its Subsidiaries to any
Person excluding any sale, assignment, transfer or other
disposition of any equipment which, in the reasonable judgment of
the Borrower, has become obsolete, worn out or uneconomic in the
ordinary course of business, the proceeds of which are used to
purchase replacement equipment within 60 days from the date of
sale, assignment, transfer or other disposition.

         "Assignee Lender" is defined in Section 10.11.1.

         "Authorized Officer" means, relative to any Obligor, those
of its officers whose signatures and incumbency shall have been
certified to the Agent and the Lenders pursuant to Section 5.1.8.

         "Barclays" is defined in the fifth recital.

         "Base Rate Loan" means a Loan bearing interest at a
fluctuating rate determined by reference to the Alternate Base
Rate.

         "Basic Documents" means the Loan Documents, the Purchase
Documents, the Debt Assignment Documents, the Project Loan
Documents and the Project Documents.

         "BONY" is defined in the fourth recital.

         "Borrower" is defined in the preamble.

         "Borrowing" means the Loans of the same type and, in the
case of LIBO Rate Loans, having the same Interest Period made by
all Lenders on the same Business Day and pursuant to the same
Borrowing Request in accordance with Section 2.1.

         "Borrowing Request" means a loan request and certificate
duly executed by an Authorized Officer of the Borrower,
substantially in the form of Exhibit B hereto.

         "Business Day" means

                  (a)  any day which is neither a Saturday or Sunday nor
         a legal holiday on which banks are authorized or required to
         be closed in San Francisco, California or New York, New
         York; and

                  (b)  relative to the making, continuing, prepaying or
         repaying of any LIBO Rate Loans, any day on which dealings
         in Dollars are carried on in the London interbank market.

         "Calpine" means Calpine Corporation, a Delaware corporation.


                                       -4-
<PAGE>

         "Calpine Equity Contribution" means the cash contribution by
Calpine to the equity of the Borrower.

         "Calpine Subordinated Indebtedness" means all Indebtedness
of the Borrower to Calpine which is subordinated pursuant to the
Subordination Agreement to the Obligations.

         "Capitalized Lease Liabilities" means all rental obligations
of the Borrower or any of its Subsidiaries under any leasing or
similar arrangement which, in accordance with GAAP, would be
classified as capitalized leases, and, for purposes of this
Agreement and each other Loan Document, the amount of such
obligations shall be the capitalized amount thereof, determined
in accordance with GAAP, and 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.

         "Cash Equivalent Investment" means, at any time:

                  (a)  any evidence of the Indebtedness, maturing not
         more than one year after such time, issued or guaranteed by
         the United States Government or an agency or instrumentality
         thereof;

                  (b)  commercial paper, maturing not more than nine
         months from the date of issue, which is issued by

                           (i)  a corporation (excluding Affiliates of any
                  Obligor other than Credit Suisse) organized under the
                  laws of any state of the United States or of the
                  District of Columbia and rated A-l by Standard & Poor's
                  Corporation or P-l by Moody's Investors Service, Inc.,
                  or

                           (ii)  any Lender (or its holding company or
                  Affiliate);

                  (c)  any certificate of deposit or bankers acceptance,
         maturing not more than one year after such time, which is
         issued by either

                           (i)  a commercial banking institution that is a
                  member of the Federal Reserve System and has a combined
                  capital and surplus and undivided profits of not less
                  than $500,000,000, or

                           (ii)  any Lender; or

                  (d)      money market mutual funds registered with the
         Securities and Exchange Commission;


                                       -5-
<PAGE>

                  (e)      corporate evidences of indebtedness rated A or
         better by S&P or A2 or better by Moody's;

                  (f)  any repurchase agreement entered into with any
         Lender (or other commercial banking institution of the
         stature referred to in clause (c)(i)) which

                           (i)  is secured by a fully perfected security
                  interest in any obligation of the type described in any
                  of clauses (a) through (c); and

                           (ii) has a market value at the time such
                  repurchase agreement is entered into of not less than
                  100% of the repurchase obligation of such Lender (or
                  other commercial banking institution) thereunder.

         "Cash Flow" means, for any period, as applied to the
Borrower, the amount of all cash received from all sources,
including (i) dividends or other distributions from EDCC, and
(ii) any Project Indebtedness Payments received from Cogenron or
Clear Lake under the Project Loan Documents, but excluding
payments and other amounts received by the Borrower pursuant to
the Project Loan Documents in its capacity as "Bank" of "Lender"
thereunder which, under the terms of the Project Loan Documents,
are to be applied (i) to payments under the Project Documents
prior to the payment of Project Indebtedness Payments or (ii)
which are to be deposited into reserve or similar accounts or
which are distributable to the respective borrowers under the
Project Loan Documents after the payment of Project Indebtedness
Payments.

         "CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended.

         "CERCLIS" means the Comprehensive Environmental Response
Compensation Liability Information System List.

         "Change in Control" means (i)the acquisition by any Person,
or two or more Persons acting in concert, of beneficial ownership
(within the meaning of Rule 13d-3 of the Securities and Exchange
Commission under the Securities Exchange Act of 1934) of 20% or
more of the outstanding shares of voting stock of Calpine,
(ii) the failure of Calpine to own, directly or indirectly, free
and clear of all Liens or other encumbrances (other than those
created pursuant to the Loan Documents), 100% of the issued and
outstanding shares of voting stock of the Borrower on a fully
diluted basis or (iii) the failure of the Borrower to own 50% of
the issued and outstanding shares of voting stock of EDCC on a
fully diluted basis.

         "Clear Lake" is defined in the third recital.


                                       -6-
<PAGE>

         "Clear Lake Credit Agreement" is defined in the fifth
recital.

         "Clear Lake Debt Acquisition" is defined in the fifth
recital.

         "Clear Lake Lenders" is defined in the fifth recital.

         "Clear Lake Project" means the approximately 377 megawatt
gas-fired combined-cycle power plant located in Pasadena, Texas
and owned by Clear Lake.

         "Clear Lake Standstill Agreement" means the Override and
Standstill Agreement dated as of June 23, 1997 among Clear Lake,
EC3, EDCC, DEI Texas, Inc., Dominion Cogen, Inc., Dominion
Energy, Inc., Dominion Resources, Inc. and the Borrower.

         "Clear Lake Subordinated Indebtedness" means the
subordinated Indebtedness of Clear Lake to EDCC subordinated
pursuant to the Subordination Agreement (Clear Lake) to the
Indebtedness of Clear Lake under the Clear Lake Credit Agreement.

         "Code" means the Internal Revenue Code of 1986, as amended,
reformed or otherwise modified from time to time.

         "Cogen Venture" is defined in the sixth recital.

         "Cogenron" is defined in the second recital.

         "Cogenron Credit Agreement" is defined in the fourth
recital.

         "Cogenron Debt Acquisition" is defined in the fourth
recital.

         "Cogenron Lenders" is defined in the fourth recital.

         "Cogenron Project" means the approximately 450 megawatt gas-
fired combined-cycle power plant located in Texas City, Texas and
owned by Cogenron.

         "Cogenron Standstill Agreement" means the Override and
Standstill Agreement date as of June 23, 1997 among Cogenron,
Cogenron Funding Corp., EC1, EDCC, DEI Texas, Inc., Dominion
Cogen, Inc., Dominion Energy, Inc., Dominion Resources, Inc. and
the Borrower.

         "Collateral" means the collective reference to all property,
and the proceeds thereof, described in the Collateral Security
Documents.



                                       -7-
<PAGE>

         "Collateral Security Documents" means the Deposit and
Disbursement Agreement(s), the Pledge Agreement(s) and the
Security Agreements.

         "Commitment" means, relative to any Lender, such Lender's
obligation to make Loans pursuant to Section 2.1.

         "Commitment Amount" means $125,000,000.

         "Contingent Liability" means any agreement, undertaking or
arrangement by which any Person guarantees, endorses or otherwise
becomes or is contingently liable upon (by direct or indirect
agreement, contingent or otherwise, to provide funds for payment,
to supply funds to, or otherwise to invest in, a debtor, or
otherwise to assure a creditor against loss) the indebtedness,
obligation or any other liability of any other Person (other than
by endorsements of instruments in the course of collection), or
guarantees the payment of dividends or other distributions upon
the shares of any other Person.  The amount of any Person's
obligation under any Contingent Liability shall be calculated on
a net basis (i.e., after taking into effect agreements,
undertakings and other arrangements between the Person whose
obligations are being guaranteed and the counterparty to such
Person's obligations) and shall (subject to any limitation set
forth therein) be deemed to be the outstanding net principal
amount (or maximum net principal amount, if larger) of the debt,
obligation or other liability guaranteed thereby, or, if the
principal amount is not stated or determinable, the maximum
reasonably anticipated net liability in respect thereof as
determined by the Person in good faith, provided that (y) the
amount of any Contingent Liability arising out of any
indebtedness, obligation or liability other than the items
described in clauses (a), (b) and (c) of the definition of
"Indebtedness" shall be deemed to be zero unless and until the
Borrower's independent auditors have quantified the amount of the
exposure thereunder (and thereafter shall be deemed to be the
amount so quantified from time to time), and (z) the amount of
any Contingent Liability consisting of a "keep-well", "make well"
or other similar arrangement shall be deemed to be zero unless
and until the Borrower is required to make any payment with
respect thereto (and shall thereafter be deemed to be the amount
required to be paid)..

         "Continuation/Conversion Notice" means a notice of
continuation or conversion and certificate duly executed by an
Authorized Officer of the Borrower, substantially in the form of
Exhibit C hereto.

         "Controlled Group" means all members of a controlled group
of corporations and all members of a controlled group of trades
or businesses (whether or not incorporated) under common control


                                       -8-
<PAGE>

which, together with the Borrower, are treated as a single
employer under Section 414(b) or 414(c) of the Code or Section
4001 of ERISA.

         "Debt Acquisitions" is defined in the fifth recital.

         "Debt Assignment Documents" means the documents pursuant to
which the Debt Acquisitions are consummated.

         "Default" means any Event of Default or any condition,
occurrence or event which, after notice or lapse of time or both,
would constitute an Event of Default.

         "Deposit and Disbursement Agreement" means the Deposit and
Disbursement Agreement executed and delivered by the Borrower
pursuant to Section 5.1.11, substantially in the form of Exhibit
D hereto, as amended, supplemented, restated or otherwise
modified from time to time.

         "Disclosure Schedule" means the Disclosure Schedule attached
hereto as Schedule 1, as it may be amended, supplemented or
otherwise modified from time to time by the Borrower with the
written consent of the Agent and the Required Lenders.

         "Dollar" and the sign "$" mean lawful money of the United
States.

         "Domestic Office" means, relative to any Lender, the office
of such Lender designated as such below its signature hereto or
designated in the Lender Assignment Agreement or such other
office of a Lender (or any successor or assign of such Lender)
within the United States as may be designated from time to time
by notice from such Lender, as the case may be, to each other
Person party hereto.

         "Dominion" is defined in the first recital.

         "EC1" is defined in the second recital.

         "EC3" is defined in the third recital.

         "EC5" is defined in the sixth recital.

         "EDCC" is defined in the first recital.

         "EDCC Distribution" means any distribution received by the
Borrower from EDCC or any of its Subsidiaries, whether in cash or
other property, and whether in respect of dividends, advances or
otherwise except any dividends issued pursuant to paragraph 1 of
Article FOURTH of the amended certificate of incorporation of
EDCC to the extent such dividends are required to and are


                                       -9-
<PAGE>

promptly recontributed to EDCC pursuant to a Recontribution
Agreement (as defined in such paragraph 1).

         "Effective Date" means the date this Agreement becomes
effective pursuant to Section 10.8.

         "Environmental Laws" means all applicable federal, state or
local statutes, laws, ordinances, codes, rules, regulations and
guidelines (including consent decrees and administrative orders)
relating to public health and safety and protection of the
environment.

         "Equity Issuance" means (a) any issuance or sale by the
Borrower or any of its Subsidiaries after the Effective Date of
(i) any capital stock, (ii) any warrants or options exercisable
in respect of capital stock, (iii) any other security or
instrument representing an equity interest (or the right to
obtain an equity interest) in the issuance or selling Person or
(b) the receipt by the Company or by any of its Subsidiaries
after the Effective Date of any capital contribution received
(whether or not evidenced by any equity security issued by the
recipient of such contribution).

         "Equity Support Agreements" means the equity support and
guaranty agreements more specifically described in Schedule 8.

         "ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and any successor statute of similar import,
together with the regulations thereunder, in each case as in
effect from time to time.  References to sections of ERISA also
refer to any successor sections.

         "Event of Default" is defined in Section 8.1.

         "Federal Funds Rate" means, for any period, a fluctuating
interest rate per annum equal for each day during such period to

                  (a)  the weighted average of the rates on overnight
         federal funds transactions with members of the Federal
         Reserve System arranged by federal funds brokers, as
         published for such day (or, if such day is not a Business
         Day, for the next preceding Business Day) by the Federal
         Reserve Bank of New York; or

                  (b)  if such rate is not so published for any day which
         is a Business Day, the average of the quotations for such
         day on such transactions received by Scotiabank from three
         federal funds brokers of recognized standing selected by it.



                                      -10-
<PAGE>

         "Financial Projections" means the pro forma financial
projections, dated April 1, 1997, a copy of which is attached
hereto as Schedule 7.

         "Fiscal Quarter" means any quarter of a Fiscal Year.

         "Fiscal Year" means any period of twelve consecutive
calendar months ending on December 31; references to a Fiscal
Year with a number corresponding to any calendar year (e.g. the
"1996 Fiscal Year") refer to the Fiscal Year ending on the
December 31 occurring during such calendar year.

         "F.R.S. Board" means the Board of Governors of the Federal
Reserve System or any successor thereto.

         "GAAP" is defined in Section 1.4.

         "Guaranty Agreement (By Enron)" means the Guaranty Agreement
(By Enron) dated as of March 27, 1997 issued by Enron Corp.

         "Hazardous Material" means

                  (a)  any "hazardous substance", as defined by CERCLA;

                  (b)  any "hazardous waste", as defined by the Resource
         Conservation and Recovery Act, as amended;

                  (c)  any petroleum product; or

                  (d)  any pollutant or contaminant or hazardous,
         dangerous or toxic chemical, material or substance within
         the meaning of any other applicable federal, state or local
         law, regulation, ordinance or requirement (including consent
         decrees and administrative orders) relating to or imposing
         liability or standards of conduct concerning any hazardous,
         toxic or dangerous waste, substance or material, all as
         amended or hereafter amended.

         "Hedging Obligations" means, with respect to any Person, all
liabilities of such Person under interest rate swap agreements,
interest rate cap agreements and interest rate collar agreements,
and all other agreements or arrangements designed to protect such
Person against fluctuations in interest rates or currency
exchange rates.

         "herein", "hereof", "hereto", "hereunder" and similar terms
contained in this Agreement or any other Loan Document refer to
this Agreement or such other Loan Document, as the case may be,
as a whole and not to any particular Section, paragraph or
provision of this Agreement or such other Loan Document.



                                      -11-
<PAGE>

         "Impermissible Qualification" means, relative to the opinion
or certification of any independent public accountant as to any
financial statement of the Borrower, any qualification or
exception to such opinion or certification

                  (a)  which is of a "going concern" or similar nature;

                  (b)  except with respect to EC5 and Cogen Venture,
         which relates to the limited scope of examination of matters
         relevant to such financial statement; or

                  (c)  which relates to the treatment or classification
         of any item in such financial statement and which, as a
         condition to its removal, would require an adjustment to
         such item the effect of which would be to cause the Borrower
         to be in default of any of its obligations under Section
         7.2.4.

         "including" means including without limiting the generality
of any description preceding such term, and, for purposes of this
Agreement and each other Loan Document, the parties hereto agree
that the rule of ejusdem generis shall not be applicable to limit
a general statement, which is followed by or referable to an
enumeration of specific matters, to matters similar to the
matters specifically mentioned.

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

         "Indebtedness" of any Person means, without duplication:

                  (a)  all obligations of such Person for borrowed money
         and all obligations of such Person evidenced by bonds,
         debentures, notes or other similar instruments;

                  (b)  all obligations, contingent or otherwise, relative
         to the face amount of all letters of credit, whether or not
         drawn, and banker's acceptances issued for the account of
         such Person;

                  (c)  all obligations of such Person as lessee under
         leases which have been or should be, in accordance with
         GAAP, recorded as Capitalized Lease Liabilities;

                  (d)  all other items other than deferred taxes,
         deferred revenue and deferred leases which, in accordance
         with GAAP, would be included as liabilities on the liability
         side of the balance sheet of such Person as of the date at
         which Indebtedness is to be determined;


                                      -12-
<PAGE>

                  (e)  net liabilities of such Person under all Hedging
         Obligations;

                  (f)  whether or not so included as liabilities in
         accordance with GAAP, all obligations of such Person to pay
         the deferred purchase price of property or services, and
         indebtedness (excluding prepaid interest thereon) secured by
         a Lien on property owned or being purchased by such Person
         (including indebtedness arising under conditional sales or
         other title retention agreements), whether or not such
         indebtedness shall have been assumed by such Person or is
         limited in recourse; and

                  (g)  all Contingent Liabilities of such Person in
         respect of any of the foregoing.

For all purposes of this Agreement, the Indebtedness of any
Person shall include the Indebtedness of any partnership or joint
venture in which such Person is a general partner or a joint
venturer, unless the indebtedness of such partnership or joint
venture is expressly nonrecourse to such Person.

         "Indemnification Agreement" means the Indemnification
Agreement executed and delivered by Calpine pursuant to Section
5.1.22, substantially in the form of Exhibit L hereto, as
amended, supplemented, restated or otherwise modified from time
to time.

         "Indemnification and Allocation Agreement" means the
Indemnification and Allocation Agreement dated as of March 27,
1997 by and between the Borrower and the Seller.

         "Indemnified Liabilities" is defined in Section 10.4.

         "Indemnified Parties" is defined in Section 10.4.

         "Independent Engineer" means the Harris Group, or such other
independent engineering firm as shall be engaged by the Agent to
examine the Projects, and to advise and render such other reports
to the Agent concerning the Projects or in connection with the
Transaction or the Basic Documents as the Agent shall deem
necessary or advisable.

         "Interest Coverage Ratio" means, for the four most recent
Fiscal Quarters (or the period from the Effective Date to the
date of determination, if four Fiscal Quarters have not occurred
since the Effective Date), the ratio of (x) Cash Flow during such
period to (y) Interest Expense incurred during such period.

         "Interest Expense" means, for any period, as applied to the
Borrower, the sum of (a) the total interest expense of the


                                      -13-
<PAGE>

Borrower and its consolidated Subsidiaries for such period as
determined in accordance with GAAP (other than interest expense
under the Calpine Subordinated Indebtedness that is not paid
currently or held under the Deposit and Disbursement Agreement as
provided in Section 7.2.6(b)(ii), plus (b) all but the principal
component of rentals in respect of Capitalized Lease Liabilities
paid, accrued, or scheduled to be paid or accrued by the Borrower
or its consolidated Subsidiaries, plus (c) capitalized interest
of the Borrower and its consolidated Subsidiaries (other than
capitalized interest under the Calpine Subordinated
Indebtedness).

         "Interest Period" means, relative to any LIBO Rate Loans,
the period beginning on (and including) the date on which such
LIBO Rate Loan is made or continued as, or converted into, a LIBO
Rate Loan pursuant to Section 2.2 or 2.3 and ending on (but
excluding) the day which numerically corresponds to such date
one, three or six months thereafter (or, if such month has no
numerically corresponding day, on the last Business Day of such
month), in either case as the Borrower may select in its relevant
notice pursuant to Section 2.2 or 2.3; provided, however, that

                  (a)  the Borrower shall not be permitted to select
         Interest Periods to be in effect at any one time which have
         expiration dates occurring on more than five different
         dates;

                  (b)  Interest Periods commencing on the same date for
         Loans comprising part of the same Borrowing shall be of the
         same duration; and

                  (c)  if such Interest Period would otherwise end on a
         day which is not a Business Day, such Interest Period shall
         end on the next following Business Day (unless, if such
         Interest Period applies to LIBO Rate Loans, such next
         following Business Day is the first Business Day of a
         calendar month, in which case such Interest Period shall end
         on the Business Day next preceding such numerically
         corresponding day).

         "Investment" means, relative to any Person,

                  (a)  any loan or advance made by such Person to any
         other Person (excluding commission, travel and similar
         advances to officers and employees made in the ordinary
         course of business);

                  (b)  any Contingent Liability of such Person; and

                  (c)  any ownership or similar interest held by such
         Person in any other Person.


                                      -14-
<PAGE>

The amount of any Investment shall be the original principal or
capital amount thereof less all returns of principal or equity
thereon (and without adjustment by reason of the financial
condition of such other Person) and shall, if made by the
transfer or exchange of property other than cash, be deemed to
have been made in an original principal or capital amount equal
to the fair market value of such property.

         "Lender Assignment Agreement" means a Lender Assignment
Agreement substantially in the form of Exhibit I hereto.

         "Lenders" is defined in the preamble.

         "LIBO Rate" is defined in Section 3.2.1.

         "LIBO Rate Loan" means a Loan bearing interest, at all times
during an Interest Period applicable to such Loan, at a fixed
rate of interest determined by reference to the LIBO Rate
(Reserve Adjusted).

         "LIBO Rate (Reserve Adjusted)" is defined in Section 3.2.1.

         "LIBOR Office" means, relative to any Lender, the office of
such Lender designated as such below its signature hereto or
designated in the Lender Assignment Agreement or such other
office of a Lender as designated from time to time by notice from
such Lender to the Borrower and the Agent, whether or not outside
the United States, which shall be making or maintaining LIBO Rate
Loans of such Lender hereunder.

         "LIBOR Reserve Percentage" is defined in Section 3.2.1.

         "Lien" means any security interest, mortgage, pledge,
hypothecation, assignment, deposit arrangement, encumbrance, lien
(statutory or otherwise), charge against or interest in property
to secure payment of a debt or performance of an obligation or
other priority or preferential arrangement of any kind or nature
whatsoever.

         "Loan" is defined in Section 2.1.

         "Loan Document" means this Agreement, the Notes, the
Collateral Security Documents, the Subordination Agreement, the
Swap Agreements, the Indemnification Agreement and each other
agreement, document or instrument delivered in connection
therewith.

         "Loan Purchase Agreement" means the Loan Purchase Agreement
executed and delivered by Calpine and the Borrower pursuant to
Section 5.1.21, substantially in the form of Exhibit K hereto, as


                                      -15-
<PAGE>

amended, supplemented, restated or otherwise modified from time
to time.

         "Material Adverse Effect" means (a) a material adverse
change in, or a material adverse effect upon the Transaction,
either Project, or the financial condition, operations or assets
(including any power projects) of the Borrower and its
Subsidiaries taken as a whole; or (b) a material adverse change
in the ability of the Borrower or any other Obligor to perform
under any Loan Document.

         "Monthly Payment Date" means the last day of each calendar
month or, if any such day is not a Business Day, the next
succeeding Business Day.

         "Net Available Proceeds" means (i) in the case of any Asset
Sale, the gross cash proceeds available to the Borrower less all
transaction costs, and less the amount of all Indebtedness (other
than Loans) secured by the Property sold and repaid in connection
with such Asset Sale, (ii) in the case of any Equity Issuance,
the gross consideration available to the Borrower received by or
for account of the issuer less underwriting and brokerage
commissions, discounts and fees and other professional fees and
expenses relating to such issuance that are payable by the
issuer, and all transaction costs, and less all amounts paid by
the Borrower or its Subsidiaries to third parties under the
Project Documents and all Project Indebtedness Payments made with
the proceeds of such Equity Issuance and (iii) in the case of
Project Indebtedness Payments or EDCC Distributions, the gross
amount (except for netting of payments under Hedging Obligations)
received by the Borrower with respect thereto.

         "Note" means a promissory note of the Borrower payable to
any Lender, in the form of Exhibit A hereto (as such promissory
note may be amended, endorsed or otherwise modified from time to
time), evidencing the aggregate Indebtedness of the Borrower to
such Lender resulting from outstanding Loans, and also means all
other promissory notes accepted from time to time in substitution
therefor or renewal thereof.

         "Obligations" means all obligations (monetary or otherwise)
of the Borrower and each other Obligor arising under or in
connection with this Agreement, the Notes and each other Loan
Document.

         "Obligor" means the Borrower or any other Person (other
than the Agent or any Lender) obligated under any Loan Document.

         "Organic Document" means, relative to any Obligor, its
certificate of incorporation, its by-laws and all shareholder


                                      -16-
<PAGE>

agreements, voting trusts and similar arrangements applicable to
any of its authorized shares of capital stock.

         "Participant" is defined in Section 10.11.

         "PBGC" means the Pension Benefit Guaranty Corporation and
any entity succeeding to any or all of its functions under ERISA.

         "Pension Plan" means a "pension plan", as such term is
defined in section 3(2) of ERISA, which is subject to Title IV of
ERISA (other than a multiemployer plan as defined in section
4001(a)(3) of ERISA), and to which the Borrower or any
corporation, trade or business that is, along with the Borrower,
a member of a Controlled Group, may have liability, including any
liability by reason of having been a substantial employer within
the meaning of section 4063 of ERISA at any time during the
preceding five years, or by reason of being deemed to be a
contributing sponsor under section 4069 of ERISA.

         "Percentage" means, relative to any Lender, the percentage
set forth opposite its signature hereto or set forth in the
Lender Assignment Agreement, as such percentage may be adjusted
from time to time pursuant to Lender Assignment Agreement(s)
executed by such Lender and its Assignee Lender(s) and delivered
pursuant to Section 10.11.

         "Person" means any natural person, corporation, partnership,
firm, association, trust, government, governmental agency or any
other entity, whether acting in an individual, fiduciary or other
capacity.

         "Plan" means any Pension Plan or Welfare Plan.

         "Pledge Agreement" means the Pledge Agreement executed and
delivered pursuant to Section 5.1.10, substantially in the form
of Exhibit G hereto, as amended, supplemented, restated or
otherwise modified from time to time.

         "Process Agent" is defined in Section 10.13(b).

         "Project Documents" means (i) the "Project Documents" as
defined in the Clear Lake Credit Agreement which have not
terminated, including those more specifically described in
Schedule 3 and (ii) "Material Project Contracts" as defined in
the Cogenron Credit Agreement which have not terminated,
including those more specifically described in Schedule 4.

         "Project Indebtedness Payments" means payments of principal
and interest under the Project Loan Documents.



                                      -17-
<PAGE>

         "Project Loan Documents" means (i) the Clear Lake Credit
Agreement and each other "Credit Document" (as defined in the
Clear Lake Credit Agreement), including those more specifically
described in Schedule 5 and (ii) the Cogenron Credit Agreement
and each other "Loan Document" (as defined in the Cogenron Credit
Agreement), including those more specifically described in
Schedule 6.

         "Project Swap Agreements" means (i) the Interest Rate and
Currency Exchange Agreement dated June 23, 1989 between Barclays
Bank PLC and Clear Lake and (ii) the Interest Rate and Currency
Exchange Agreement dated January 22, 1991 between The Bank of New
York and Cogenron.

         "Projects" means the Clear Lake Project and the Cogenron
Project.

         "Property" means any right or interest in or to property of
any kind whatsoever, whether real, personal or mixed and whether
tangible or intangible.

         "Purchase Agreement" is defined in the first recital.

         "Purchase Documents" means the Purchase Agreement, the
Guaranty Agreement (By Enron) and the Indemnification and
Allocation Agreement.

         "Quarterly Payment Date" means the last day of each March,
June, September, and December or, if any such day is not a
Business Day, the next succeeding Business Day.

         "Release" means a "release", as such term is defined in
CERCLA.

         "Reorganization Agreement" means that certain Reorganization
Agreement dated as of April 14, 1989 by and among Dominion
Resources, Inc., Dominion, Enron Corporation and EDCC, as amended
by that certain Amendment to Reorganization Agreement dated as of
June 30, 1991 by and among such parties.

         "Required Lenders" means, at any time, Lenders holding at
least 66 2/3% of the then aggregate outstanding principal amount
of the Notes then held by the Lenders, or, if no such principal
amount is then outstanding, Lenders having at least 66 2/3% of
the Commitments.

         "Resource Conservation and Recovery Act" means the Resource
Conservation and Recovery Act, 42 U.S.C. Section 690, et seq., as
in effect from time to time.



                                      -18-
<PAGE>

         "Security Agreements" means the Security Agreement and the
Assignment and Security Agreement executed and delivered pursuant
to Section 5.1.12, substantially in the form of Exhibit E and
Exhibit F hereto, as amended, supplemented, restated or otherwise
modified from time to time.

         "Seller" is defined in the first recital.

         "Senior Debt" means the outstanding principal amount of all
Indebtedness of the Borrower and its Subsidiaries of the nature
referred to in clauses (a), (b), (c) and (f) of the definition of
"Indebtedness," but excluding Calpine Subordinated Indebtedness.

         "Senior Debt to Cash Flow Ratio" means, for any period of
four Fiscal Quarters (or if four Fiscal Quarters have not passed
from the Effective Date, the period from the Effective Date to
the most recent Fiscal Quarter end), the ratio of (x) the
consolidated Senior Debt of the Borrower and its Subsidiaries as
of the end of the most recent Fiscal Quarter (after giving effect
to payments made as of the end of such Fiscal Quarter) to
(y) Cash Flow during such period (and, if four Fiscal Quarters
have not passed from the Effective Date, converted to an
annualized amount).

         "Shareholder's Agreement" means the Stockholder's Agreement
dated as of June 27, 1988, among Enron Corp., Dominion Cogen,
Inc. and Dominion Resources, Inc., as assigned by Enron Corp. to
Calpine.

         "Standstill Agreements" means the Clear Lake Standstill
Agreement and the Cogenron Standstill Agreement.

         "Stated Maturity Date" means June 22, 1998.

         "Stock Purchase" is defined in the first recital.

         "Subordination Agreement" means the Subordination Agreement
executed and delivered by Calpine pursuant to Section 5.1.13,
substantially in the form of Exhibit H hereto, as amended,
supplemented, restated or otherwise modified from time to time.

         "Subordination Agreement (Clear Lake)" means the Amended and
Restated Subordination Agreement dated as of January 18, 1994, by
and among Clear Lake, EDCC and Barclays Bank PLC, as agent, as
amended, supplemented, restated or otherwise modified from time
to time.

         "Subsidiary" means, with respect to any Person, any
corporation of which 50% or more of the outstanding capital stock
having ordinary voting power to elect a majority of the board of
directors of such corporation (irrespective of whether at the


                                      -19-
<PAGE>

time capital stock of any other class or classes of such
corporation shall or might have voting power upon the occurrence
of any contingency) is at the time directly or indirectly owned
by such Person, by such Person and one or more other Subsidiaries
of such Person, or by one or more other Subsidiaries of such
Person.

         "Swap Agreements" means (i) the Interest Rate and Currency
Exchange Agreement dated concurrently herewith between the
Borrower and Scotiabank, relating to the Cogenron Project, and
(ii) the Interest Rate and Currency Exchange Agreement dated
concurrently herewith between the Borrower and Scotiabank
relating to the Clear Lake Project.

         "Tangible Net Worth" means the consolidated net worth of the
Borrower and its Subsidiaries (including the Calpine Subordinated
Indebtedness) after subtracting therefrom the aggregate amount of
any intangible assets of the Borrower and its Subsidiaries,
including goodwill, franchises, licenses, patents, trademarks,
trade names, copyrights, service marks and brand names.

         "Taxes" is defined in Section 4.6.

         "Transaction" is defined in the fifth recital.

         "type" means, relative to any Loan, the portion thereof, if
any, being maintained as a Base Rate Loan or a LIBO Rate Loan.

         "United States" or "U.S." means the United States of
America, its fifty States and the District of Columbia.

         "Welfare Plan" means a "welfare plan", as such term is
defined in section 3(1) of ERISA.

         "Wholly Owned Subsidiary" means a Subsidiary all the capital
stock of which (other than directors' qualifying shares) is owned
by the Borrower or another Wholly Owned Subsidiary.

         SECTION 1.2.  Use of Defined Terms.  Unless otherwise
defined or the context otherwise requires, terms for which
meanings are provided in this Agreement shall have such meanings
when used in the Disclosure Schedule and in each Note, Borrowing
Request, Continuation/Conversion Notice, Loan Document, notice
and other communication delivered from time to time in connection
with this Agreement or any other Loan Document.  Unless the
context otherwise requires, references (i) to agreements shall be
deemed to mean and include such agreements as amended,
supplemented and otherwise modified from time to time in a manner
not in violation of the Loan Documents and (ii) to parties to
agreements shall be deemed to include the permitted successors
and assigns of such parties.


                                      -20-
<PAGE>

         SECTION 1.3.  Cross-References.  Unless otherwise specified,
references in this Agreement and in each other Loan Document to
any Article or Section are references to such Article or Section
of this Agreement or such other Loan Document, as the case may
be, and, unless otherwise specified, references in any Article,
Section or definition to any clause are references to such clause
of such Article, Section or definition.

         SECTION 1.4.  Accounting and Financial Determinations.
Unless otherwise specified, all accounting terms used herein or
in any other Loan Document shall be interpreted, all accounting
determinations and computations hereunder or thereunder
(including under Section 7.2.4) shall be made, and all financial
statements required to be delivered hereunder or thereunder shall
be prepared in accordance with, those generally accepted
accounting principles ("GAAP") applied in the preparation of the
financial statements referred to in Section 6.5.


                                   ARTICLE II

                   COMMITMENTS, BORROWING PROCEDURES AND NOTES

         SECTION 2.1.  Commitments.  On the terms and subject to the
conditions of this Agreement (including Article V), each Lender
severally agrees to make Loans pursuant to the Commitments
described in this Section 2.1.  On or before June 30, 1997, upon
the satisfaction or waiver of the conditions precedent set forth
in Article V, each Lender will make Loans (relative to such
Lender, and of any type, its "Loans") to the Borrower equal to
such Lender's Percentage of $125,000,000.  The commitment of each
Lender described in this Section 2.1 is herein referred to as its
"Commitment".  No amounts paid or prepaid with respect to any
Loans may be reborrowed.

         SECTION 2.2.  Borrowing Procedure.  By delivering a
Borrowing Request to the Agent on or before 10:00 a.m., San
Francisco time, on a Business Day not later than June 30, 1997,
the Borrower may from time to time irrevocably request, on not
less than three Business Days' notice, in the case of LIBO Rate
Loans, or one Business Day's notice, in the case of Base Rate
Loans, that a Borrowing be made in the amount of $125,000,000.
On the terms and subject to the conditions of this Agreement,
each Borrowing shall be comprised of the type of Loans, and shall
be made on the Business Day, specified in such Borrowing Request.
On or before 11:00 a.m., San Francisco time, on such Business Day
each Lender shall deposit with the Agent same day funds in an
amount equal to such Lender's Percentage of the requested
Borrowing.  Such deposit will be made to an account which the
Agent shall specify from time to time by notice to the Lenders.
To the extent funds are received from the Lenders by such time,


                                      -21-
<PAGE>

the Agent shall make such funds available to the Borrower by wire
transfer to the accounts the Borrower shall have specified in its
Borrowing Request by 12:00 p.m. on such Business Day.  No
Lender's obligation to make any Loan shall be affected by any
other Lender's failure to make any Loan.

         SECTION 2.3.  Continuation and Conversion Elections.  By
delivering a Continuation/Conversion Notice to the Agent on or
before 10:00 a.m., San Francisco time, on a Business Day, the
Borrower may from time to time irrevocably elect, on not less
than three nor more than five Business Days' notice that all, or
any portion in an aggregate minimum amount of $5,000,000, of any
Loans be, in the case of Base Rate Loans, converted into LIBO
Rate Loans or, in the case of LIBO Rate Loans, be converted into
a Base Rate Loan or continued as a LIBO Rate Loan (in the absence
of delivery of a Continuation/ Conversion Notice with respect to
any LIBO Rate Loan at least three Business Days before the last
day of the then current Interest Period with respect thereto,
such LIBO Rate Loan shall, on such last day, automatically
convert to a Base Rate Loan); provided, however, that (i) each
such conversion or continuation shall be prorated among the
applicable outstanding Loans of all Lenders, and (ii) no portion
of the outstanding principal amount of any Loans may be continued
as, or be converted into, LIBO Rate Loans when any Default has
occurred and is continuing.  The Agent shall promptly transmit
the information in each Continuation/Conversion Notice to each
Lender.

         SECTION 2.4.  Funding.  Each Lender may, if it so elects,
fulfill its obligation to make, continue or convert LIBO Rate
Loans hereunder by causing one of its foreign branches or
Affiliates (or an international banking facility created by such
Lender) to make or maintain such LIBO Rate Loan; provided,
however, that such LIBO Rate Loan shall nonetheless be deemed to
have been made and to be held by such Lender, and the obligation
of the Borrower to repay such LIBO Rate Loan shall nevertheless
be to such Lender for the account of such foreign branch,
Affiliate or international banking facility; provided, further,
that each Lender shall use reasonable efforts in making any such
election to minimize the costs payable by Borrower hereunder with
respect to any Loan or Commitment.  In addition, the Borrower
hereby consents and agrees that, for purposes of any
determination to be made for purposes of Sections 4.1, 4.2, 4.3
or 4.4, it shall be conclusively assumed that each Lender elected
to fund all LIBO Rate Loans by purchasing Dollar deposits in its
LIBOR Office's interbank eurodollar market.

         SECTION 2.5.  Notes.  Each Lender's Loans under its
Commitment shall be evidenced by a Note payable to the order of
such Lender in a maximum principal amount equal to such Lender's
Percentage of the original Commitment Amount.  The Borrower


                                      -22-
<PAGE>

hereby irrevocably authorizes each Lender to make (or cause to be
made) appropriate notations on the grid attached to such Lender's
Note (or on any continuation of such grid), which notations, if
made, shall evidence, inter alia, the date of, the outstanding
principal of, and the interest rate and Interest Period
applicable to the Loans evidenced thereby.  Such notations shall
be conclusive and binding on the Borrower absent manifest error;
provided, however, that the failure of any Lender to make any
such notations shall not limit or otherwise affect any
Obligations of the Borrower.


                                   ARTICLE III

                   REPAYMENTS, PREPAYMENTS, INTEREST AND FEES

         SECTION 3.1.  Repayments and Prepayments.  The Borrower
shall repay in full the unpaid principal amount of each Loan upon
the Stated Maturity Date therefor.  Prior thereto, the Borrower

                  (a) may, from time to time on any Business Day, make
         a voluntary prepayment, in whole or in part, of the
         outstanding principal amount of any Loans; provided,
         however, that

                           (i)      any such prepayment shall be made pro rata
                  among Loans of the same type and, if applicable, having
                  the same Interest Period of all Lenders;

                           (ii)      no such prepayment of any LIBO Rate Loan
                  may be made on any day other than the last day of the
                  Interest Period for such Loan, unless Borrower also
                  pays all losses and expenses as a result of such
                  prepayment as provided in Section 4.4;

                           (iii)  all such voluntary prepayments shall
                  require at least three but no more than five Business
                  Days' prior written notice to the Agent; and

                           (iv)  all such voluntary partial prepayments shall
                  be in an aggregate minimum amount of $500,000 and an
                  integral multiple of $500,000;

                  (b)  shall, within two Business Day's after receipt of
         Net Available Proceeds from (i) Asset Sales, (ii) Equity
         Issuances, (iii) Project Indebtedness Payments (excluding
         that portion of the first Project Indebtedness Payments made
         after the Effective Date under the Clear Lake Credit
         Agreement and the Cogenron Credit Agreement representing
         interest accrued under each of the Clear Lake Credit
         Agreement and the Cogenron Credit Agreement from the last


                                      -23-
<PAGE>

         principal payment date under each of the Clear Lake Credit
         Agreement and the Cogenron Credit Agreement through the
         Effective Date, which amounts may be used by the Borrower to
         repay Calpine Subordinated Indebtedness or to pay a dividend
         to Calpine), or (iv) EDCC Distributions, deposit any such
         amounts with the Agent to be held pursuant to the Deposit
         and Disbursement Agreement and applied first to repayment of
         interest on the Loans, and then to repayment of the
         principal amount of the Loans, such repayment to occur (A)
         in the case of Base Rate Loans, on the third Business Day
         after receipt of such Net Available Proceeds by the
         Borrower, and (B) in the case of LIBO Rate Loans, on the
         next day or days on which amounts are payable with respect
         thereto without the payment of losses and expenses as
         described in Section 4.4; and

               (c)  shall, immediately upon any acceleration of the
           Stated Maturity Date of any Loans pursuant to Section 8.2
           or Section 8.3, repay all Loans, unless, pursuant to
           Section 8.3, only a portion of all Loans is so accelerated.

           Each prepayment of any Loans made pursuant to this Section
shall be without premium or penalty, except as may be required by
Section 4.4.

           SECTION 3.2.  Interest Provisions.  Interest on the
outstanding principal amount of Loans shall accrue and be payable
in accordance with this Section 3.2.

           SECTION 3.2.1.  Rates.  Pursuant to an appropriately
delivered Borrowing Request or Continuation/Conversion Notice,
the Borrower may elect that Loans comprising a Borrowing accrue
interest at a rate per annum:

                    (a)  on that portion maintained from time to time as a
           Base Rate Loan, equal to the sum of the Alternate Base Rate
           from time to time in effect plus a margin of .75%; and

                    (b)  on that portion maintained as a LIBO Rate Loan,
           during each Interest Period applicable thereto, equal to
           the sum of the LIBO Rate (Reserve Adjusted) for such
           Interest Period plus a margin of 1.25%.

           The "LIBO Rate (Reserve Adjusted)" means, relative to any
Loan to be made, continued or maintained as, or converted into, a
LIBO Rate Loan for any Interest Period, a rate per annum (rounded
upwards, if necessary, to the nearest 1/16 of 1%) determined
pursuant to the following formula:

              LIBO Rate           =              LIBO Rate
           (Reserve Adjusted)          1.00 - LIBOR Reserve Percentage


                                      -24-
<PAGE>


           The LIBO Rate (Reserve Adjusted) for any Interest Period
for LIBO Rate Loans will be determined by the Agent on the basis
of the LIBOR Reserve Percentage in effect on, and the applicable
rates furnished to and received by the Agent from Scotiabank, two
Business Days before the first day of such Interest Period.

           "LIBO Rate" means, relative to any Interest Period for LIBO
Rate Loans, the rate of interest equal to the average (rounded
upwards, if necessary, to the nearest 1/16 of 1%) of the rates
per annum at which Dollar deposits in immediately available funds
are offered to Scotiabank's LIBOR Office in the London interbank
market as at or about 11:00 a.m. London time two Business Days
prior to the beginning of such Interest Period for delivery on
the first day of such Interest Period, and in an amount
approximately equal to the amount of the LIBO Rate Loans and for
a period approximately equal to such Interest Period.

           "LIBOR Reserve Percentage" means, relative to any Interest
Period for LIBO Rate Loans, the reserve percentage (expressed as
a decimal) equal to the maximum aggregate reserve requirements
(including all basic, emergency, supplemental, marginal and other
reserves and taking into account any transitional adjustments or
other scheduled changes in reserve requirements) specified under
regulations issued from time to time by the F.R.S. Board and then
applicable to assets or liabilities consisting of and including
"Eurocurrency Liabilities", as currently defined in Regulation D
of the F.R.S. Board, having a term approximately equal or
comparable to such Interest Period.

           All LIBO Rate Loans shall bear interest from and including
the first day of the applicable Interest Period to (but not
including) the last day of such Interest Period at the interest
rate determined as applicable to such LIBO Rate Loan.

           SECTION 3.2.2.  Post-Maturity Rates.  After the date any
principal amount of any Loan is due and payable (whether on the
Stated Maturity Date, upon acceleration or otherwise), or after
any other monetary Obligation of the Borrower shall have become
due and payable, the Borrower shall pay, but only to the extent
permitted by law, interest (after as well as before judgment) on
such amounts at a rate per annum equal to the Alternate Base Rate
plus a margin of 2.75%.

           SECTION 3.2.3.  Payment Dates.  Interest accrued on each
Loan shall be payable, without duplication:

                    (a)  on the Stated Maturity Date therefor;

                    (b)  on the date of any payment or prepayment, in
           whole or in part, of principal outstanding on such Loan;


                                      -25-
<PAGE>

                    (c)  with respect to Base Rate Loans, on each
           Quarterly Payment Date occurring after the Effective Date;

                    (d)  with respect to LIBO Rate Loans, the last day of
           each applicable Interest Period (and, if such Interest
           Period shall exceed 3 months, on each day which occurs
           during such Interest Period every three months from the
           first day of such Interest Period);

                    (e)  with respect to any Base Rate Loans converted
           into LIBO Rate Loans on a day when interest would not
           otherwise have been payable pursuant to clause (c), on the
           date of such conversion; and

                    (f)  on that portion of any Loans the Stated Maturity
           Date of which is accelerated pursuant to Section 8.2 or
           Section 8.3, immediately upon such acceleration.

Interest accrued on Loans or other monetary Obligations arising
under this Agreement or any other Loan Document after the date
such amount is due and payable (whether on the Stated Maturity
Date, upon acceleration or otherwise) shall be payable upon
demand.


                                   ARTICLE IV

                     CERTAIN LIBO RATE AND OTHER PROVISIONS

           SECTION 4.1.  LIBO Rate Lending Unlawful.  If any Lender
shall determine (which determination shall, upon notice thereof
to the Borrower and the Lenders, be conclusive and binding on the
Borrower) that the introduction of or any change in or in the
interpretation of any law makes it unlawful, or any central bank
or other governmental authority asserts that it is unlawful, for
such Lender to make, continue or maintain any Loan as, or to
convert any Loan into, a LIBO Rate Loan, the obligations of all
Lenders to make, continue, maintain or convert any such Loans
shall, upon such determination, forthwith be suspended until such
Lender shall notify the Agent that the circumstances causing such
suspension no longer exist, and all LIBO Rate Loans shall
automatically convert into Base Rate Loans at the end of the then
current Interest Periods with respect thereto or sooner, if
required by such law or assertion.

           SECTION 4.2.  Deposits Unavailable.  If the Agent shall
have determined that

                    (a)  Dollar certificates of deposit or Dollar
           deposits, as the case may be, in the relevant amount and


                                      -26-
<PAGE>

           for the relevant Interest Period are not available to
           Scotiabank in its relevant market; or

                    (b)  by reason of circumstances affecting Scotiabank's
           relevant market, adequate means do not exist for
           ascertaining the interest rate applicable hereunder to LIBO
           Rate Loans,

then, upon notice from the Agent to the Borrower and the Lenders,
the obligations of all Lenders under Section 2.2 and Section 2.3
to make or continue any Loans as, or to convert any Loans into,
LIBO Rate Loans shall forthwith be suspended until the Agent
shall notify the Borrower and the Lenders that the circumstances
causing such suspension no longer exist.

           SECTION 4.3.  Increased LIBO Rate Loan Costs, etc.  The
Borrower agrees to reimburse each Lender for any increase in the
cost to such Lender of, or any reduction in the amount of any sum
receivable by such Lender in respect of, making, continuing or
maintaining (or of its obligation to make, continue or maintain)
any Loans as, or of converting (or of its obligation to convert)
any Loans into, LIBO Rate Loans as a result in any change after
the Effective Date in applicable law, regulation, rule, decree or
regulatory requirement or in the interpretation or application by
any judicial or regulatory authority of any law, regulation,
rule, decree or regulatory requirement.  Such Lender shall
promptly notify the Agent and the Borrower in writing of the
occurrence of any such event, such notice to state, in reasonable
detail, the reasons therefor and the additional amount required
fully to compensate such Lender for such increased cost or
reduced amount.  Such additional amounts shall be payable by the
Borrower directly to such Lender within five days of its receipt
of such notice, and such notice shall, in the absence of manifest
error, be conclusive and binding on the Borrower.

           SECTION 4.4.  Funding Losses.  In the event any Lender
shall incur any loss or expense (including any loss or expense
incurred by reason of the liquidation or reemployment of deposits
or other funds acquired by such Lender to make, continue or
maintain any portion of the principal amount of any Loan as, or
to convert any portion of the principal amount of any Loan into,
a LIBO Rate Loan) as a result of

                    (a)  any conversion or repayment or prepayment of the
           principal amount of any LIBO Rate Loans on a date other
           than the scheduled last day of the Interest Period
           applicable thereto, whether pursuant to Section 3.1 or
           otherwise;

                    (b)  any Loans not being made as LIBO Rate Loans in
           accordance with the Borrowing Request therefor; or


                                      -27-
<PAGE>

                    (c)  any Loans not being continued as, or converted
           into, LIBO Rate Loans in accordance with the Continuation/
           Conversion Notice therefor,

then, upon the written notice of such Lender to the Borrower
(with a copy to the Agent), the Borrower shall, within five days
of its receipt thereof, pay directly to such Lender such amount
as will (in the reasonable determination of such Lender)
reimburse such Lender for such loss or expense.  Such written
notice (which shall include calculations in reasonable detail)
shall, in the absence of manifest error, be conclusive and
binding on the Borrower.

           SECTION 4.5.  Increased Capital Costs.  If any change in,
or the introduction, adoption, effectiveness, interpretation,
reinterpretation or phase-in of, any law or regulation,
directive, guideline, decision or request (whether or not having
the force of law) of any court, central bank, regulator or other
governmental authority causes the amount of capital required or
expected to be maintained by any Lender or any Person controlling
such Lender to be increased, and such Lender determines (in its
reasonable discretion) that the rate of return on its or such
controlling Person's capital as a consequence of its Commitment
or the Loans made by such Lender is reduced to a level below that
which such Lender or such controlling Person could have achieved
but for the occurrence of any such circumstance, then, in any
such case upon notice from time to time by such Lender to the
Borrower, the Borrower shall immediately pay directly to such
Lender additional amounts sufficient to compensate such Lender or
such controlling Person for such reduction in rate of return.  A
statement of such Lender as to any such additional amount or
amounts (including calculations thereof in reasonable detail)
shall, in the absence of manifest error and if made in good
faith, be conclusive and binding on the Borrower.  In determining
such amount, such Lender may use any method of averaging and
attribution that it (in its good faith discretion) shall deem
applicable.

           SECTION 4.6.  Taxes.  All payments by the Borrower of
principal of, and interest on, the Loans and all other amounts
payable hereunder shall be made free and clear of and without
deduction for any present or future income, excise, stamp or
franchise taxes and other taxes, fees, duties, withholdings or
other charges of any nature whatsoever imposed by any taxing
authority, but excluding franchise taxes and taxes imposed on or
measured by any Lender's net income or receipts (such non-
excluded items being called "Taxes").  In the event that any
withholding or deduction from any payment to be made by the
Borrower hereunder is required in respect of any Taxes pursuant
to any applicable law, rule or regulation, then the Borrower will



                                      -28-
<PAGE>

                    (a)  pay directly to the relevant authority the full
           amount required to be so withheld or deducted;

                    (b)  promptly forward to the Agent an official receipt
           or other documentation satisfactory to the Agent evidencing
           such payment to such authority; and

                    (c)  pay to the Agent for the account of the Lenders
           such additional amount or amounts as is necessary to ensure
           that the net amount actually received by each Lender will
           equal the full amount such Lender would have received had
           no such withholding or deduction been required.

Moreover, if any Taxes are directly asserted against the Agent or
any Lender with respect to any payment received by the Agent or
such Lender hereunder, the Agent or such Lender may pay such
Taxes and the Borrower will promptly pay such additional amounts
(including any penalties, interest or expenses) as is necessary
in order that the net amount received by such person after the
payment of such Taxes (including any Taxes on such additional
amount) shall equal the amount such person would have received
had not such Taxes been asserted.

           If the Borrower fails to pay any Taxes when due to the
appropriate taxing authority or fails to remit to the Agent, for
the account of the respective Lenders, the required receipts or
other required documentary evidence, the Borrower shall indemnify
the Lenders for any incremental Taxes, interest or penalties that
may become payable by any Lender as a result of any such failure.
For purposes of this Section 4.6, a distribution hereunder by the
Agent or any Lender to or for the account of any Lender shall be
deemed a payment by the Borrower.

           Upon the request of the Borrower or the Agent, each Lender
that is organized under the laws of a jurisdiction other than the
United States shall, prior to the due date of any payments under
the Notes, execute and deliver to the Borrower and the Agent, on
or about the first scheduled payment date in each Fiscal Year,
one or more (as the Borrower or the Agent may reasonably request)
United States Internal Revenue Service Forms 4224 or Forms 1001
or such other forms or documents (or successor forms or
documents), appropriately completed, as may be applicable to
establish the extent, if any, to which a payment to such Lender
is exempt from withholding or deduction of Taxes.

           SECTION 4.7.  Payments, Computations, etc.  Unless
otherwise expressly provided, all payments by the Borrower
pursuant to this Agreement, the Notes or any other Loan Document
shall be made by the Borrower to the Agent for the pro rata
account of the Lenders entitled to receive such payment.  All
such payments required to be made to the Agent shall be made,


                                      -29-
<PAGE>

without setoff, deduction or counterclaim, not later than 11:00
a.m., San Francisco time, on the date due, in same day or
immediately available funds, to such account as the Agent shall
specify from time to time by notice to the Borrower.  Funds
received after that time shall be deemed to have been received by
the Agent on the next succeeding Business Day.  The Agent shall
promptly remit in same day funds to each Lender its share, if
any, of such payments received by the Agent for the account of
such Lender.  All interest and fees shall be computed on the
basis of the actual number of days (including the first day but
excluding the last day) occurring during the period for which
such interest or fee is payable over a year comprised of 360 days
(or, in the case of interest on a Base Rate Loan (other than when
calculated with respect to the Federal Funds Rate), 365 days or,
if appropriate, 366 days).  Whenever any payment to be made shall
otherwise be due on a day which is not a Business Day, such
payment shall (except as otherwise required by clause (c) of the
definition of the term "Interest Period" with respect to LIBO
Rate Loans) be made on the next succeeding Business Day and such
extension of time shall be included in computing interest and
fees, if any, in connection with such payment.

           SECTION 4.8.  Sharing of Payments.  If any Lender shall
obtain any payment or other recovery (whether voluntary,
involuntary, by application of setoff or otherwise) on account of
any Loan (other than pursuant to the terms of Sections 4.3, 4.4
and 4.5) in excess of its pro rata share of payments then or
therewith obtained by all Lenders, such Lender shall purchase
from the other Lenders such participations in Loans made by them
as shall be necessary to cause such purchasing Lender to share
the excess payment or other recovery ratably with each of them;
provided, however, that if all or any portion of the excess
payment or other recovery is thereafter recovered from such
purchasing Lender, the purchase shall be rescinded and each
Lender which has sold a participation to the purchasing Lender
shall repay to the purchasing Lender the purchase price to the
ratable extent of such recovery together with an amount equal to
such selling Lender's ratable share (according to the proportion
of

                    (a)  the amount of such selling Lender's required
           repayment to the purchasing Lender

to

                    (b)  the total amount so recovered from the purchasing
           Lender)

of any interest or other amount paid or payable by the purchasing
Lender in respect of the total amount so recovered.  The Borrower
agrees that any Lender so purchasing a participation from another


                                      -30-
<PAGE>

Lender pursuant to this Section may, to the fullest extent
permitted by law, exercise all its rights of payment with respect
to such participation as fully as if such Lender were the direct
creditor of the Borrower in the amount of such participation.  If
under any applicable bankruptcy, insolvency or other similar law,
any Lender receives a secured claim in lieu of a setoff to which
this Section applies, such Lender shall, to the extent
practicable, exercise its rights in respect of such secured claim
in a manner consistent with the rights of the Lenders entitled
under this Section to share in the benefits of any recovery on
such secured claim.

           SECTION 4.9.  Actions of Affected Lenders.  Each Lender
agrees to use reasonable efforts (including reasonable efforts to
change the booking office for its Loans) to avoid or minimize any
illegality pursuant to Section 4.1 or any amounts which might
otherwise be payable pursuant to Sections 4.3 or 4.5; provided,
however, that such efforts shall not cause the imposition on such
Lender of any additional costs or legal or regulatory burdens
deemed by such Lender to be material.  In the event that such
reasonable efforts are insufficient to avoid all such illegality
or all amounts that might be payable pursuant to Sections 4.3 or
4.5, then the Borrower may request such Lender (the "Affected
Lender") to transfer its Commitments hereunder to any other
Lender (which itself is not then an Affected Lender) or financial
institution designated by the Borrower; provided, however, that
such transfer shall not cause the imposition on such Affected
Lender of additional costs or legal or regulatory burdens deemed
by such Affected Lender to be material.

           SECTION 4.10.  Use of Proceeds.  The Borrower shall apply
the proceeds of each Borrowing in accordance with the tenth
recital; without limiting the foregoing, no proceeds of any Loan
will be used to acquire any equity security of a class which is
registered pursuant to Section 12 of the Securities Exchange Act
of 1934 or any "margin stock", as defined in F.R.S. Board
Regulation U.


                                    ARTICLE V

                             CONDITIONS TO BORROWING

           SECTION 5.1.  Initial Borrowing.  The obligations of the
Lenders to fund the initial Borrowing shall be subject to the
prior or concurrent satisfaction of each of the conditions
precedent set forth in this Section 5.1.

           SECTION 5.1.1.  Stock Purchase Consummated.  The conditions
set forth in Section 6.1 of the Purchase Agreement to the
obligations of the Borrower to consummate the Stock Purchase


                                      -31-
<PAGE>

shall have been satisfied in full (without amendment or waiver
of, or other forbearance to exercise any rights with respect to,
any of the terms or provisions thereof by the Borrower, except as
approved in writing by the Agent), and the Stock Purchase shall
have been consummated in accordance with Article VI of the
Purchase Agreement for an aggregate base purchase price
(excluding related fees and expenses and any post-closing
adjustments under the Purchase Agreement) not greater than
$35,450,000.

           SECTION 5.1.2.  Debt Acquisitions Consummated.  The Debt
Acquisitions shall have been consummated for a purchase price of
not greater than $52,999,300 (plus accrued interest) for the
Cogenron Debt Acquisition and of not greater than $102,622,665
(plus accrued interest) for the Clear Lake Debt Acquisition, and
transaction fees and expenses for the Transaction shall not have
exceeded $3,500,000; and all Liens securing payment of any such
Indebtedness have been assigned to the Borrower and the Borrower
shall have received all Uniform Commercial Code Form UCC-2
assignment statements or other instruments as may be suitable or
appropriate in connection therewith.

           SECTION 5.1.3.  Consents.  Cogenron, Clear Lake and, except
as set forth in Item 5.1.3 of the Disclosure Schedule, each other
party to any Project Loan Document (other than any lender or
agent thereunder) shall have consented to the assignment of such
Project Loan Documents to the Borrower and there shall be no
prohibition on the Borrower further assigning such Project Loan
Documents to the Agent.  Except as set forth in Item 5.1.3 of the
Disclosure Schedule, there shall be no prohibition of any
assignment of any Project Document to the Borrower (or further
assignment from the Borrower to the Agent) as collateral for the
obligations under the Project Loan Documents.

           SECTION 5.1.4.  Government Approvals.  All governmental
approvals necessary in connection with the Transaction, the
financing contemplated by this Agreement, and the continuing
operations of the Borrower and its Subsidiaries shall have been
obtained and be in full force and effect, and all applicable
waiting periods shall have expired without any action being taken
or threatened by any competent authority which would restrain,
prevent or otherwise impose adverse conditions on the Transaction
or the financing contemplated by this Agreement.

           SECTION 5.1.5.  Project Swap Agreements.  Arrangements
satisfactory to the Agent shall have been made with respect to
the Project Swap Agreements.

           SECTION 5.1.6.  Calpine Equity Contribution.  The Calpine
Equity Contribution shall have been consummated and the Borrower


                                      -32-
<PAGE>

shall have received Net Available Proceeds therefrom of at least
$35,425,000.

           SECTION 5.1.7.  Calpine Subordinated Indebtedness.  The
Borrower shall have received at least $32,575,000 of cash
proceeds from issuance of the Calpine Subordinated Indebtedness;
provided, however, that such amount shall be increased on a
dollar for dollar basis to the extent that the Purchase Price (as
defined in the Purchase Agreement) is increased pursuant to
Section 2.3(B) of the Purchase Agreement.

           SECTION 5.1.8.  Resolutions, etc.  The Agent shall have
received from each Obligor a certificate, dated the date of the
initial Borrowing, of its Secretary or Assistant Secretary as to

                    (a)  resolutions of its Board of Directors then in
           full force and effect authorizing the execution, delivery
           and performance of this Agreement, the Notes and each other
           Loan Document to be executed by it; and

                    (b)  the incumbency and signatures of those of its
           officers authorized to act with respect to this Agreement,
           the Notes and each other Loan Document executed by it,

upon which certificate each Lender may conclusively rely until it
shall have received a further certificate of the Secretary of
such Obligor canceling or amending such prior certificate.

           SECTION 5.1.9.  Delivery of Notes.  The Agent shall have
received, for the account of each Lender, its Note duly executed
and delivered by the Borrower.

           SECTION 5.1.10.  Pledge Agreement.  The Agent shall have
received executed counterparts of the Pledge Agreement, dated as
of the date hereof, duly executed by the Borrower, together with
the certificates evidencing all of the issued and outstanding
shares of capital stock pledged pursuant to the Pledge Agreement,
which certificates shall in each case be accompanied by undated
stock powers duly executed in blank.

           SECTION 5.1.11.  Deposit and Disbursement Agreement.  The
Agent shall have received the Deposit and Disbursement Agreement,
dated the date hereof, duly executed by the Borrower.

           SECTION 5.1.12.  Security Agreements.  The Agent shall have
received executed counterparts of the Security Agreements, dated
as of the date hereof, duly executed by the Borrower, together
with

                    (a)  acknowledgment copies of properly filed Uniform
           Commercial Code financing statements (Form UCC-1), dated a


                                      -33-
<PAGE>

           date reasonably near to the date of the initial Borrowing,
           or such other evidence of filing as may be acceptable to
           the Agent, naming the Borrower as the debtor and the Agent
           as the secured party, or other similar instruments or
           documents, filed under the Uniform Commercial Code of all
           jurisdictions as may be necessary or, in the opinion of the
           Agent, desirable to perfect the security interest of the
           Agent pursuant to the Security Agreements;

                    (b)  executed copies of proper Uniform Commercial Code
           Form UCC-3 termination statements, if any, necessary to
           release all Liens and other rights of any Person in any
           collateral described in the Security Agreements previously
           granted by any Person; and

                    (c)  certified copies of Uniform Commercial Code
           Requests for Information or Copies (Form UCC-11), or a
           similar search report certified by a party acceptable to
           the Agent, dated a date reasonably near to the date of the
           initial Borrowing, listing all effective financing
           statements which name the Borrower (under its present name
           and any previous names) as the debtor and which are filed
           in the jurisdictions in which filings were made pursuant to
           clause (a) above, together with copies of such financing
           statements (none of which (other than those described in
           clause (a), if such Form UCC-11 or search report, as the
           case may be, is current enough to list such financing
           statements described in clause (a)) shall cover any
           collateral described in the Security Agreements).

           SECTION 5.1.13.  Subordination Agreement.  The Agent shall
have received the Subordination Agreement, in form and substance
satisfactory to the Agent, from Calpine in respect of the Calpine
Subordinated Indebtedness.

           SECTION 5.1.14.  Opinions of Counsel.  The Agent shall
have received opinions, dated the date of the initial Borrowing
and addressed to the Agent and all Lenders, from Joseph E. Ronan,
Jr., Washburn, Briscoe and McCarthy and Brobeck, Phleger &
Harrison, counsel to the Obligors, substantially in the form of
Exhibit J hereto.

           SECTION 5.1.15.  Purchase Documents.  The Agent shall have
received a copy of the Purchase Documents and any supplements or
amendments thereto, certified by the Borrower as of the Effective
Date as being true, complete and correct and in full force and
effect.

           SECTION 5.1.16.  Project Documents and Project Loan
Documents.  The Agent shall have received copies of each Project
Document and Project Loan Documents and any supplements or


                                      -34-
<PAGE>

amendments thereto, certified by the Borrower as of the Effective
Date as being true, complete and correct and in full force and
effect.

           SECTION 5.1.17.  Projections.  The Agent shall have
received the Financial Projections, in form and substance
satisfactory to the Agent, from the Borrower.

           SECTION 5.1.18.  Insurance Certificates.  The Agent shall
have received copies of certificates of insurance signed by a
broker of nationally recognized standing certifying that all
insurance policies required under Section 7.1.4 are in full force
and effect and comply in all material respects with the
requirements of such section.

           SECTION 5.1.19.  Independent Engineer's Report.  The Agent
shall have received the report of the Independent Engineer with
respect to the performance and operation of the Projects, in form
and substance satisfactory to the Agent.

           SECTION 5.1.20.  Financial Statements.  The Agent shall
have received and approved the financial statements described in
Section 6.5 hereof.  In addition, the Agent shall have received a
pro-forma opening consolidated balance sheet of the Borrower as
of the Effective Date, giving effect to the Transaction, which
balance sheet shall be satisfactory in all respects to the Agent.

           SECTION 5.1.21.  Loan Purchase Agreement.  The Agent shall
have received the Loan Purchase Agreement, dated the date hereof,
duly executed by Calpine and the Borrower.

           SECTION 5.1.22.  Indemnification Agreement.  The Agent
shall have received the Indemnification Agreement, dated the date
hereof, duly executed by Calpine.

           SECTION 5.1.23.  Due Diligence.  The Agent shall have
satisfactorily completed its legal and financial due diligence
review of the assets, properties, facilities, business and
operations of EDCC, Cogenron and Clear Lake and the assets,
properties and facilities constituting the Projects.

           SECTION 5.1.24.  Closing Fees, Expenses, etc.  The Agent
shall have received for its own account, or for the account of
each Lender, as the case may be, all fees, costs and expenses due
and payable pursuant to Sections 10.3 if then invoiced and any
amounts then owing pursuant to any fee letters among the parties.

           SECTION 5.2.  All Borrowings.  The obligation of each
Lender to fund any Loan on the occasion of any Borrowing
(including the initial Borrowing) shall be subject to the


                                      -35-
<PAGE>

satisfaction of each of the conditions precedent set forth in
this Section 5.2.

           SECTION 5.2.1.  Compliance with Warranties, No Default,
etc.  Both before and after giving effect to any Borrowing (but,
if any Default of the nature referred to in Section 8.1.5 shall
have occurred with respect to any other Indebtedness, without
giving effect to the application, directly or indirectly, of the
proceeds thereof) the following statements shall be true and
correct

                    (a)  the representations and warranties set forth in
           Article VI (excluding, however, those contained in Section
           6.7) shall be true and correct with the same effect as if
           then made (unless stated to relate solely to an early date,
           in which case such representations and warranties shall be
           true and correct as of such earlier date);

                    (b)  except as disclosed by the Borrower to the Agent
           and the Lenders pursuant to Section 6.7

                             (i)  no labor controversy, litigation,
                    arbitration or governmental investigation or
                    proceeding shall be pending or, to the knowledge of
                    the Borrower, threatened against the Borrower or any
                    of its Subsidiaries which has or may reasonably be
                    expected to have a Material Adverse Effect or which
                    purports to materially and adversely affect the
                    legality, validity or enforceability of this
                    Agreement, the Notes or any other Loan Document, or of
                    the Purchase Documents; and

                             (ii)  no development shall have occurred in any
                    labor controversy, litigation, arbitration or
                    governmental investigation or proceeding disclosed
                    pursuant to Section 6.7 which has or may reasonably be
                    expected to have a Material Adverse Effect; and

                    (c)  no Default shall have then occurred and be
           continuing, and neither the Borrower nor any of its
           Subsidiaries are in violation of any law or governmental
           regulation or court order or decree which would reasonably
           be expected to result in a Material Adverse Effect.

           SECTION 5.2.2.  Borrowing Request.  The Agent shall have
received a Borrowing Request for such Borrowing.  Each of the
delivery of a Borrowing Request and the acceptance by the
Borrower of the proceeds of such Borrowing shall constitute a
representation and warranty by the Borrower that on the date of
such Borrowing (both immediately before and after giving effect


                                      -36-
<PAGE>

to such Borrowing and the application of the proceeds thereof)
the statements made in Section 5.2.1 are true and correct.

           SECTION 5.2.3.  Satisfactory Legal Form.  All documents
executed or submitted pursuant hereto by or on behalf of the
Borrower or any of its Subsidiaries or any other Obligor shall be
satisfactory in form and substance to the Agent and its counsel;
the Agent and its counsel shall have received all information,
approvals, opinions, documents or instruments as the Agent or its
counsel may reasonably request.


                                   ARTICLE VI

                         REPRESENTATIONS AND WARRANTIES

           In order to induce the Lenders and the Agent to enter into
this Agreement and to make Loans hereunder, the Borrower
represents and warrants unto the Agent and each Lender as set
forth in this Article VI.

           SECTION 6.1.  Organization, etc.  The Borrower and each of
its Subsidiaries is a corporation or partnership validly
organized and existing and in good standing under the laws of the
State of its formation, is duly qualified to do business and is
in good standing as a foreign corporation or partnership in each
jurisdiction where the nature of its business requires such
qualification, and has full power and authority and holds all
requisite governmental licenses, permits and other approvals to
enter into and perform its Obligations under this Agreement, the
Notes and each other Loan Document to which it is a party and to
own and hold under lease its property and to conduct its business
substantially as currently conducted by it.

           SECTION 6.2.  Due Authorization, Non-Contravention, etc.
The execution, delivery and performance by the Borrower of this
Agreement, the Notes and each other Loan Document executed or to
be executed by it, and the execution, delivery and performance by
each other Obligor of each Loan Document executed or to be
executed by it and the Borrower's and each such other Obligor's
participation in the consummation of the Transaction are within
the Borrower's and each such Obligor's corporate powers, have
been duly authorized by all necessary corporate action, and do
not

                    (a)  contravene the Borrower's or any such Obligor's
           Organic Documents;

                    (b)  contravene any contractual restriction, law or
           governmental regulation or court decree or order binding on
           or affecting the Borrower or any such Obligor; or


                                      -37-
<PAGE>

                    (c)  result in, or require the creation or imposition
           of, any Lien on any of any Obligor's properties, other than
           Liens permitted under Section 7.2.3(a).

           SECTION 6.3.  Government Approval, Regulation, etc.  No
authorization or approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body or
other Person is required for the due execution, delivery or
performance by the Borrower or any other Obligor of this
Agreement, the Notes or any other Loan Document to which it is a
party, or for the Borrower's and each such other Obligor's
participation in the consummation of the Transaction, except for
the filings required under the Hart-Scott-Rodino Antitrust
Improvement Act of 1976 (the "HSR Act"), and the consents and
approvals listed in Schedules 4.1.3 and 4.1.7 attached to the
Purchase Agreement, all of which have been duly obtained or made
and are in full force and effect.  Neither the Borrower nor any
of its Subsidiaries is  an "investment company" within the
meaning of the Investment Company Act of 1940, as amended, or is
subject to regulation as a "holding company", or a "subsidiary
company" of a "holding company", or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company",
within the meaning of the Public Utility Holding Company Act of
1935, as amended.

           SECTION 6.4.  Validity, etc.  This Agreement constitutes,
and the Notes and each other Loan Document executed by the
Borrower will, on the due execution and delivery thereof,
constitute, the legal, valid and binding obligations of the
Borrower enforceable in accordance with their respective terms,
except as enforceability may be subject to or limited by
(i) bankruptcy, insolvency, reorganization, arrangement,
moratorium or other similar laws affecting the rights of
creditors or (ii) general principles of equity, including the
possible unavailability of specific performance or injunctive
relief; and each Loan Document executed pursuant hereto by each
other Obligor will, on the due execution and delivery thereof by
such Obligor, be the legal, valid and binding obligation of such
Obligor enforceable in accordance with its terms, except as
enforceability may be subject to or limited by (i) bankruptcy,
insolvency, reorganization, arrangement, moratorium or other
similar laws affecting the rights of creditors or (ii) general
principles of equity, including the possible unavailability of
specific performance or injunctive relief.

           SECTION 6.5.  Financial Information.  The (i) balance sheet
of the Borrower, (ii) consolidated balance sheet of EDCC and each
of its Subsidiaries, (iii) balance sheet of Clear Lake, and (iv)
balance sheet of Cogenron, each as at December 31, 1996 (except
for the balance sheet of Borrower, which shall be prepared on a
proforma basis as of the Effective Date), and the related


                                      -38-
<PAGE>

statements of earnings and cash flow (for all such entities
except the Borrower), copies of which have been furnished to the
Agent and each Lender, have been prepared in accordance with GAAP
consistently applied, and present fairly the consolidated
financial condition of the Persons covered thereby as at the
dates thereof and the results of their operations for the periods
then ended.  On and as of the Effective Date, the Borrower has no
Indebtedness, other than (i) indebtedness incurred hereunder and
(ii) Calpine Subordinated Indebtedness.

           SECTION 6.6.  No Material Adverse Change.  Since the date
of the financial statements described in Section 6.5 through the
Effective Date, there has been no material adverse change in the
financial condition, operations, assets, business, properties or
prospects of the Borrower and its Subsidiaries, except as
reflected in the Financial Projections.

           SECTION 6.7.  Litigation, Labor Controversies, etc.  There
is no pending or, to the knowledge of the Borrower, threatened
litigation, action, proceeding, or labor controversy affecting
the Borrower or any of its Subsidiaries, or any of their
respective properties, businesses, assets or revenues, which may
materially adversely affect the financial condition, operations,
assets, business, properties or prospects of the Borrower or any
Subsidiary or which purports to affect the legality, validity or
enforceability of this Agreement, the Notes or any other Loan
Document, except as disclosed in Item 6.7 ("Litigation") of the
Disclosure Schedule.

           SECTION 6.8.  Subsidiaries.  The Borrower has no
Subsidiaries, except EDCC, EC1, Cogenron, EC3, Clear Lake and
EC5.  EDCC has no Subsidiaries other than EC1, Cogenron, EC3,
Clear Lake and EC5.  EC5 has a 7.06% equity investment in Cogen
Venture.

           SECTION 6.9.  Ownership of Properties.  The Borrower and
each of its Subsidiaries owns good and marketable title to all of
its properties and assets, real and personal, tangible and
intangible, of any nature whatsoever (including patents,
trademarks, trade names, service marks and copyrights), free and
clear of all Liens, charges or claims (including infringement
claims with respect to patents, trademarks, copyrights and the
like) except as permitted pursuant to Section 7.2.3.

           SECTION 6.10.  Taxes.  The Borrower and each of its
Subsidiaries has filed all tax returns and reports required by
law to have been filed by it and has paid all taxes and
governmental charges thereby shown to be owing, except any such
taxes or charges which are being diligently contested in good
faith by appropriate proceedings and for which adequate reserves
in accordance with GAAP shall have been set aside on its books.


                                      -39-
<PAGE>

           SECTION 6.11.  Pension and Welfare Plans.  The Borrower has
never maintained a Pension Plan or a Welfare Plan.

           SECTION 6.12.  Environmental Warranties.  Except as set
forth in Item 6.12 ("Environmental Matters") of the Disclosure
Schedule:

                    (a)  all facilities and property (including underlying
           groundwater) owned or leased by the Borrower or any of its
           Subsidiaries have been, and continue to be, owned or leased
           by the Borrower and its Subsidiaries in material compliance
           with all Environmental Laws;

                    (b)  there are no pending or threatened

                             (i)  claims, complaints, notices or requests for
                    information received by the Borrower or any of its
                    Subsidiaries with respect to any alleged violation of
                    any Environmental Law which have not been resolved or
                    settled, or

                             (ii)  complaints, notices or inquiries to the
                    Borrower or any of its Subsidiaries regarding
                    potential liability under any Environmental Law which
                    have not been resolved or settled;

                    (c)  there have been no unremediated Releases of
           Hazardous Materials at, on or under any property now owned
           or leased by the Borrower or any of its Subsidiaries that,
           singly or in the aggregate, have, or may reasonably be
           expected to have, a Material Adverse Effect;

                    (d)  the Borrower and its Subsidiaries have been
           issued and are in material compliance with all permits,
           certificates, approvals, licenses and other authorizations
           relating to environmental matters and necessary for their
           businesses;

                    (e)  no property now owned or leased by the Borrower
           or any of its Subsidiaries is listed or proposed for
           listing (with respect to owned property only) on the
           National Priorities List pursuant to CERCLA, on the CERCLIS
           or on any similar state list of sites requiring
           investigation or clean-up;

                    (f)  there are no underground storage tanks, active
           or abandoned, including petroleum storage tanks, on or
           under any property now owned or leased by the Borrower or
           any of its Subsidiaries that, singly or in the aggregate,
           have, or may reasonably be expected to have, a Material
           Adverse Effect;


                                      -40-
<PAGE>

                    (g)  neither Borrower nor any Subsidiary of the
           Borrower has directly transported or directly arranged for
           the transportation of any Hazardous Material except in
           compliance with applicable Environmental Laws;

                    (h)  there are no polychlorinated biphenyls or friable
           asbestos present at any property now owned or leased by the
           Borrower or any Subsidiary of the Borrower that, singly or
           in the aggregate, have, or may reasonably be expected to
           have, a Material Adverse Effect; and

                    (i)  no conditions exist at, on or under any property
           now owned or leased by the Borrower which, with the passage
           of time, or the giving of notice or both, would give rise
           to liability under any Environmental Law which has or may
           reasonably be expected to have a Material Adverse Effect.

For avoidance of doubt, properties acquired as a result of the
Transaction shall be considered "now owned".

           SECTION 6.13.  Regulations G, U and X.  The Borrower is not
engaged in the business of extending credit for the purpose of
purchasing or carrying margin stock, and no proceeds of any Loans
will be used for a purpose which violates, or would be
inconsistent with, F.R.S. Board Regulation G, U or X.  Terms for
which meanings are provided in F.R.S. Board Regulation G, U or X
or any regulations substituted therefor, as from time to time in
effect, are used in this Section with such meanings.

           SECTION 6.14.  Accuracy of Information.  All factual
information heretofore or contemporaneously furnished by or on
behalf of the Borrower in writing to the Agent or any Lender for
purposes of or in connection with this Agreement or any
transaction contemplated hereby (including copies of the Purchase
Documents and the Project Documents, true and complete copies of
which were furnished to the Agent and each Lender in connection
with their execution and delivery hereof, but excluding any
information contained in the Financial Projections), true and
complete copies of which were furnished to the Agent and each
Lender in connection with its execution and delivery hereof, is,
and all other such factual information hereafter furnished by or
on behalf of the Borrower to the Agent or any Lender will be,
true and accurate in every material respect on the date as of
which such information is dated or certified and as of the date
of execution and delivery of this Agreement by the Agent and such
Lender, and such information is not, or shall not be, as the case
may be, incomplete by omitting to state any material fact
necessary to make such information not misleading.

           SECTION 6.15.  Financial Projections.  The Borrower
believes that the Financial Projections represent the Borrower's


                                      -41-
<PAGE>

most likely estimate, as of the date of the Financial
Projections, of the projected results of operations of Clear Lake
and Cogenron for the periods covered thereby, and, as such, were
prepared by the Borrower in good faith, and, to the best of the
Borrower's knowledge, are based upon reasonable assumptions and
are complete in all material respects.  The Borrower is not aware
of any facts or existing conditions that would require any
material change in the Financial Projections.

           SECTION 6.16.  Collateral Security Documents.  Upon their
execution and delivery, the Collateral Security Documents will be
effective to create, in favor of the Agent on behalf of the
Lenders, legal, valid and enforceable Liens on and security
interests in the Collateral.  Prior to or simultaneously with the
Closing Date, all necessary and appropriate recordings and
filings will have been duly effected in all appropriate public
offices so that each of the Collateral Security Documents will
constitute a valid and perfected first Lien on and first
perfected security interest in all right, title, estate and
interest of the Borrower in and to such portion of the Collateral
described in such Collateral Security Document.  The recordings
and filings shown on Schedule 2 are all the recordings, filings
and other action necessary or appropriate in order to establish,
protect and perfect such first Lien on and security interest in
the Borrower's right, title and interest in the Collateral.  The
descriptions of the Collateral set forth in the Collateral
Security Documents are true, complete, and accurate in all
respects and are adequate for the purpose of establishing,
preserving, perfecting and protecting such first Lien on and
security interest in Borrower's right, title and interest in the
Collateral.

           SECTION 6.17. Principal Place of Business, etc.  The
principal place of business and chief executive office of the
Borrower and the office where the Borrower keeps its records
concerning the Projects, the Collateral and all Basic Documents,
is located at 50 West San Fernando Avenue, San Jose, California
95113.

           SECTION 6.18. Representations and Warranties Incorporated
from Purchase Agreement.  Each of the representations and
warranties given by each of Seller and the Borrower in the
Purchase Agreement is true and correct in all material respects
as of the Effective Date, and such representations and warranties
are hereby incorporated herein by this reference with the same
effect as though set forth in their entirety herein, subject to
the qualifications thereto set forth in the Purchase Agreement.


                                   ARTICLE VII



                                      -42-
<PAGE>

                                    COVENANTS

           SECTION 7.1.  Affirmative Covenants.  The Borrower agrees
with the Agent and each Lender that, until all Commitments have
terminated and all Obligations have been paid and performed in
full, the Borrower will perform the obligations set forth in this
Section 7.1.

           SECTION 7.1.1.  Financial Information, Reports, Notices,
etc.  The Borrower will furnish, or will cause to be furnished,
to each Lender and the Agent copies of the following financial
statements, reports, notices and information:

                    (a)  as soon as available and in any event within 60
           days after the end of each of the first three Fiscal
           Quarters of each Fiscal Year of the Borrower, a balance
           sheet of the Borrower and consolidated and consolidating
           balance sheets of EDCC and its Subsidiaries (as to EC1, EC3
           and EC5, only to the extent otherwise available) as of the
           end of such Fiscal Quarter and a statement of earnings and
           cash flow of the Borrower and consolidated and
           consolidating statements of earnings and cash flow of EDCC
           and its Subsidiaries (as to EC1, EC3 and EC5, only to the
           extent otherwise available) for such Fiscal Quarter and for
           the period commencing at the end of the previous Fiscal
           Year and ending with the end of such Fiscal Quarter,
           certified by the chief financial Authorized Officer of the
           Borrower or EDCC, as applicable;

                    (b)  as soon as available and in any event within 120
           days after the end of each Fiscal Year of the Borrower, a
           copy of the annual audit report for such Fiscal Year for
           the Borrower and for EDCC and its Subsidiaries (as to EC1,
           EC3 and EC5, only to the extent otherwise available),
           including therein a balance sheet of the Borrower and
           consolidated and consolidating balance sheets of EDCC and
           its Subsidiaries (as to EC1, EC3 and EC5, only to the
           extent otherwise available) as of the end of such Fiscal
           Year and a statement of earnings and cash flow of the
           Borrower and consolidated and consolidating statements of
           earnings and cash flow of EDCC and its Subsidiaries (as to
           EC1, EC3 and EC5, only to the extent otherwise available)
           for such Fiscal Year, in each case certified (without any
           Impermissible Qualification, except as approved by the
           Agent in writing) in a manner acceptable to the Agent and
           the Required Lenders by Arthur Andersen & Company or other
           independent public accountants acceptable to the Agent and
           the Required Lenders;

                    (c)  as soon as available and in any event within 45
           days after the end of each Fiscal Quarter, a certificate,


                                      -43-
<PAGE>

           executed by the chief financial Authorized Officer of the
           Borrower, showing (in reasonable detail and with
           appropriate calculations and computations in all respects
           satisfactory to the Agent) compliance with the financial
           covenants set forth in Section 7.2.4.;

                    (d)  as soon as possible and in any event within three
           days after the Borrower obtains knowledge of each Default,
           a statement of an Authorized Officer of the Borrower
           setting forth details of such Default and the action which
           the Borrower has taken and proposes to take with respect
           thereto;

                    (e)  as soon as possible and in any event within three
           days after (x) the Borrower obtains knowledge of any
           adverse development with respect to any litigation, action,
           proceeding, or labor controversy described in Section 6.7
           or (y) the commencement of any labor controversy,
           litigation, action, proceeding of the type described in
           Section 6.7, notice thereof and copies of all documentation
           relating thereto;

                    (f)  promptly after the sending or filing thereof,
           copies of all reports which the Borrower sends to any of
           its securityholders, and all reports and registration
           statements which the Borrower or any of its Subsidiaries
           files with the Securities and Exchange Commission or any
           national securities exchange;

                    (g)  immediately upon becoming aware of the
           institution of any steps by the Borrower or any other
           Person to terminate any Pension Plan, or the failure to
           make a required contribution to any Pension Plan if such
           failure is sufficient to give rise to a Lien under section
           302(f) of ERISA, or the taking of any action with respect
           to a Pension Plan which could result in the requirement
           that the Borrower furnish a bond or other security to the
           PBGC or such Pension Plan, or the occurrence of any event
           with respect to any Pension Plan which could result in the
           incurrence by the Borrower of any material liability, fine
           or penalty, or any material increase in the contingent
           liability of the Borrower with respect to any post-
           retirement Welfare Plan benefit, notice thereof and copies
           of all documentation relating thereto;

                    (h)  information and notices which the Borrower
           receives in its capacity as agent or lender under the
           Project Loan Documents; and

                    (i)  such other information respecting the condition
           or operations, financial or otherwise, of the Borrower or


                                      -44-
<PAGE>

           any of its Subsidiaries as any Lender through the Agent may
           from time to time reasonably request and which the Borrower
           is legally or contractually permitted to provide to such
           Lender.

           SECTION 7.1.2.  Compliance with Laws, etc.  The Borrower
will, and will cause each of its Subsidiaries to, comply in all
material respects with all applicable laws, rules, regulations
and orders, such compliance to include (without limitation):

                    (a)  the maintenance and preservation of its corporate
           existence and qualification as a foreign corporation; and

                    (b)  the payment, before the same become delinquent,
           of all taxes, assessments and governmental charges imposed
           upon it or upon its property except to the extent being
           diligently contested in good faith by appropriate
           proceedings and for which adequate reserves in accordance
           with GAAP shall have been set aside on its books.

           SECTION 7.1.3.  Maintenance of Properties.  The Borrower
will, and will cause each of its Subsidiaries to, maintain,
preserve, protect and keep its properties in good repair, working
order and condition, and make necessary and proper repairs,
renewals and replacements so that its business carried on in
connection therewith may be properly conducted at all times
unless the Borrower determines in good faith that the continued
maintenance of any of its properties is no longer economically
desirable.

           SECTION 7.1.4.  Insurance.  The Borrower will, and will
cause each of its Subsidiaries to, maintain or cause to be
maintained with responsible insurance companies insurance with
respect to its properties and business (including business
interruption insurance) against such casualties and contingencies
and of such types and in such amounts as is customary in the case
of similar businesses and will, upon request of the Agent,
furnish to each Lender at reasonable intervals a certificate of
an Authorized Officer of the Borrower setting forth the nature
and extent of all insurance maintained by the Borrower and its
Subsidiaries in accordance with this Section.

           SECTION 7.1.5.  Books and Records.  The Borrower will, and
will cause each of its Subsidiaries to, keep books and records
which accurately reflect all of its business affairs and
transactions and permit the Agent and each Lender or any of their
respective representatives, at reasonable times and intervals, to
visit all of its offices, to discuss its financial matters with
its officers and independent public accountant (and the Borrower
hereby authorizes such independent public accountant to discuss
the Borrower's financial matters with each Lender or its


                                      -45-
<PAGE>

representatives whether or not any representative of the Borrower
is present) and to examine (and, at the expense of the Borrower,
photocopy extracts from) any of its books or other corporate
records.  The Borrower shall pay any fees of one such independent
public accountant incurred in connection with the Agent's or any
Lender's exercise of its rights pursuant to this Section;
provided, however, after the occurrence and during the
continuance of any Default, the Borrower shall pay for all fees
of such independent accountants incurred with each exercise by
the Agent of its rights pursuant to this Section.

           SECTION 7.1.6.  Environmental Covenant.  The Borrower will,
and will cause each of its Subsidiaries to,

                    (a)  use and operate all of its facilities and
           properties in material compliance with all Environmental
           Laws, keep all necessary permits, approvals, certificates,
           licenses and other authorizations relating to environmental
           matters in effect and remain in material compliance
           therewith, and handle all Hazardous Materials in material
           compliance with all applicable Environmental Laws;

                    (b)  immediately notify the Agent and provide copies
           upon receipt of all written claims, complaints, notices or
           inquiries relating to the condition of its facilities and
           properties or compliance with Environmental Laws, and shall
           promptly cure and have dismissed with prejudice to the
           satisfaction of the Agent any actions and proceedings
           relating to compliance with Environmental Laws; and

                    (c)  provide such information and certifications which
           the Agent may reasonably request from time to time to
           evidence compliance with this Section 7.1.6.

           SECTION 7.1.7.  Resist Regulatory Change.  If the Borrower
becomes aware that any federal, state, or local entity having
jurisdiction over the Projects or its operations has issued any
order, judgment, regulation, or decision the effect of which is
to rescind, terminate, repeal, invalidate, suspend, enjoin,
amend, or modify any of the Project Documents or any Governmental
Approval or any part of either thereof, and there shall exist a
reasonable possibility that such regulatory change will have a
Material Adverse Effect, the Borrowers shall give the Agent
notice thereof and shall, or shall cause its Subsidiaries to,
diligently and in a timely fashion (i) make all filings,
(ii) pursue all remedies and appeals, and (iii) take such other
lawful action, in each case as shall be necessary or desirable
(a) to prevent such regulatory change from becoming final and
nonappealable or otherwise irrevocable, (b) to postpone the
effectiveness of such regulatory change, and (c) to cause such
regulatory change to be revoked or amended or modified so as to


                                      -46-
<PAGE>

eliminate the reasonable possibility of such material adverse
effect.

           SECTION 7.1.8.  Take-Out Financing; Assignments.  The
Borrower shall use all reasonable efforts to arrange for and
obtain debt or equity financing sufficient to repay all loans by
not later than the Stated Maturity Date, and upon obtaining such
financing, shall repay the Loans.  The Borrower shall use all
reasonable efforts to obtain (i) assignments of all Project
Documents listed on Item 5.1.3 of the Disclosure Schedule as
collateral for the obligations under the Project Loan Documents,
(ii) consents to such assignment from the parties to such Project
Documents (other than Clear Lake and Cogenron) in a customary
form for project financing transactions and (iii) amendments to
or separate agreements relating to any Project Documents or
Project Loan Documents requiring Calpine to maintain ownership of
the Borrower which modify such ownership requirement in a manner
which will enable the Agent and the Lenders to foreclose their
security interest in the stock of the Borrower under the Pledge
Agreement.

           SECTION 7.2.  Negative Covenants.  The Borrower agrees with
the Agent and each Lender that, until all Commitments have
terminated and all Obligations have been paid and performed in
full, the Borrower will perform the obligations set forth in this
Section 7.2.

           SECTION 7.2.1.  Business Activities.  The Borrower will
not, and will not permit any of its Subsidiaries to, engage in
any business activity other than acting as equity investor in
EDCC and project lender to Cogenron and Clear Lake, investing
(directly or indirectly) in Cogenron or Clear Lake and owning the
Projects, and such activities as may be incidental thereto.

           SECTION 7.2.2.  Indebtedness.  The Borrower will not, and
will not permit any of its Subsidiaries to, create, incur, assume
or suffer to exist or otherwise become or be liable in respect of
any Indebtedness, other than, without duplication, the following:

                    (a)  Indebtedness in respect of the Loans and other
           Obligations;

                    (b)  unsecured Indebtedness incurred in the ordinary
           course of business (including open accounts extended by
           suppliers on normal trade terms in connection with
           purchases of goods and services, but excluding Indebtedness
           incurred through the borrowing of money or Contingent
           Liabilities);

                    (c)      Calpine Subordinated Indebtedness in a principal
           amount not to exceed $40,000,000 plus any amounts which the


                                      -47-
<PAGE>

           Borrower provides to EDCC under the Equity Support
           Agreements;

                    (d)      Indebtedness of Cogenron to the Borrower in a
           principal amount not to exceed $52,999,300;

                    (e)      Indebtedness of Clear Lake to the Borrower in a
           principal amount not to exceed $102,622,665;

                    (f)      Clear Lake Subordinated Indebtedness in a
           principal amount not to exceed $30,000,000; and

                    (g)      Indebtedness of the Borrower to a Subsidiary
           (other than EC5) of the Borrower, of a Subsidiary (other
           than EC5) of the Borrower to the Borrower, or of a
           Subsidiary (other than EC5) of the Borrower to another
           Subsidiary (other than EC5) of the Borrower, in each case
           subordinated to the Obligations on terms and condition
           reasonably satisfactory to the Agent.

           SECTION 7.2.3.  Liens.  The Borrower will not, and will not
permit any of its Subsidiaries to, create, incur, assume or
suffer to exist any Lien upon any of its property, revenues or
assets, whether now owned or hereafter acquired, except:

               (a)  Liens securing payment of the Obligations, granted
           pursuant to any Loan Document;

                    (b)  Liens securing payment of Indebtedness of the
           type permitted and described in clauses (d)  and (e) of
           Section 7.2.2;

                    (c)  Liens for taxes, assessments or other
           governmental charges or levies not at the time delinquent
           or thereafter payable without penalty or being diligently
           contested in good faith by appropriate proceedings and for
           which adequate reserves in accordance with GAAP shall have
           been set aside on its books;

                    (d)  Liens of carriers, warehousemen, mechanics,
           materialmen and landlords incurred in the ordinary course
           of business for sums not overdue or being diligently
           contested in good faith by appropriate proceedings and for
           which adequate reserves in accordance with GAAP shall have
           been set aside on its books;

                    (e)  Liens incurred in the ordinary course of business
           in connection with workmen's compensation, unemployment
           insurance or other forms of governmental insurance or
           benefits, or to secure performance of tenders, statutory
           obligations, leases and contracts (other than for borrowed


                                      -48-
<PAGE>

           money) entered into in the ordinary course of business or
           to secure obligations on surety or appeal bonds;

                    (f)      judgment Liens in existence less than 15 days
           after the entry thereof or with respect to which execution
           has been stayed or the payment of which is covered in full
           (subject to a customary deductible) by insurance maintained
           with responsible insurance companies;

                    (g)      Zoning restrictions, easements, rights of way,
           title irregularities and other similar encumbrances which
           alone or in the aggregate do not materially detract from
           the value of the property subject thereto;

                    (h)      Banker's Liens and similar Liens (including set-
           off rights) in respect of bank deposits; and

                    (i)      Landlord's Liens and similar Liens with respect
           to rental payments for real property which are not
           delinquent and with respect to which foreclosure,
           distraint, sale or other similar proceedings shall not have
           been commenced.

           SECTION 7.2.4.  Financial Condition.  The Borrower will not
permit:

                    (a)      Its Tangible Net Worth to be less than
           (i) $65,000,000 plus (ii) 50% of the consolidated net
           income of the Borrower and its Subsidiaries (without giving
           effect to any losses) for each Fiscal Quarter ending after
           March 31, 1997 plus (iii) 100% of the Net Available
           Proceeds from any Equity Issuance by the Borrower after
           March 31, 1997.

                    (b)      Its Senior Debt to Cash Flow Ratio to be greater
           than 4.5 to 1.00 as of the end of any Fiscal Quarter
           beginning with the Fiscal Quarter ending on September 30,
           1996.

                    (c)      Its Interest Coverage Ratio as of the end of any
           Fiscal Quarter beginning with the Fiscal Quarter ending on
           September 30, 1996 to be less than 2.00 to 1.00.

           SECTION 7.2.5.  Investments.  The Borrower will not, and
will not permit any of its Subsidiaries to, make, incur, assume
or suffer to exist any Investment in any other Person, except:

                    (a)  Investments existing on the Effective Date and
           identified in Item 7.2.5(a) ("Ongoing Investments") of the
           Disclosure Schedule;



                                      -49-
<PAGE>

                    (b)  Cash Equivalent Investments;

                    (c)  without duplication, Investments permitted as
           Indebtedness pursuant to Section 7.2.2;

                    (d)  Investments by the Borrower or any of its
           Subsidiaries (other than EC5) in any of the Borrower's
           Subsidiaries (other than EC5).

           SECTION 7.2.6.  Restricted Payments, etc.  On and at all
           times after the Effective Date:

                    (a) except as provided in Section 3.1(b), the Borrower
           will not declare, pay or make any dividend or distribution
           (in cash, property or obligations) on any shares of any
           class of capital stock (now or hereafter outstanding) of
           the Borrower or on any warrants, options or other rights
           with respect to any shares of any class of capital stock
           (now or hereafter outstanding) of the Borrower (other than
           dividends or distributions payable in its common stock or
           warrants to purchase its common stock or splitups or
           reclassifications of its stock into additional or other
           shares of its common stock) or apply, or permit any of its
           Subsidiaries to apply, any of its funds, property or assets
           to the purchase, redemption, sinking fund or other
           retirement of, or agree or permit any of its Subsidiaries
           to purchase or redeem, any shares of any class of capital
           stock (now or hereafter outstanding) of the Borrower, or
           warrants, options or other rights with respect to any
           shares of any class of capital stock (now or hereafter
           outstanding) of the Borrower;

                    (b)  the Borrower will not, and will not permit any of
           its Subsidiaries to

                             (i)  make any payment or prepayment of principal
                    of the Calpine Subordinated Indebtedness (except as
                    provided in Section 3.1(b)) or the Clear Lake
                    Subordinated Indebtedness, or which would violate the
                    subordination provisions of the Calpine Subordinated
                    Indebtedness or the Clear Lake Subordinated
                    Indebtedness; or

                             (ii)  make any payment of interest on the Calpine
                    Subordinated Indebtedness (except as provided in
                    Section 3.1(b)) or the Clear Lake Subordinated
                    Indebtedness; provided, however, that the Borrower
                    may, so long as no Default or Event of Default exists,
                    make such payments on the stated, scheduled date for
                    such payment set forth in the Subordination Agreement
                    by depositing an amount equal to the amount of such


                                      -50-
<PAGE>

                    interest into an account pledged to the Agent pursuant
                    to the Deposit and Disbursement Agreement (it being
                    understood that no such funds shall be released to
                    Calpine until all Obligations have been fully and
                    finally discharged); or

                             (iii)  redeem, purchase or defease, any Calpine
                    Subordinated Indebtedness or Clear Lake Subordinated
                    Indebtedness; and

                    (c)  the Borrower will not, and will not permit any
           Subsidiary to, make any deposit for any of the foregoing
           purposes.

           SECTION 7.2.7.  Rental Obligations.  Except for the leases
described in Item 7.2.7 of the Disclosure Schedule, the Borrower
will not, and will not permit any of its Subsidiaries to, enter
into at any time any arrangement which does not create a
Capitalized Lease Liability and which involves the leasing by the
Borrower or any of its Subsidiaries from any lessor of any real
or personal property (or any interest therein), except
arrangements which, together with all other such arrangements
which shall then be in effect, will not require the payment of an
aggregate amount of rentals by the Borrower and its Subsidiaries
in excess of (excluding escalations resulting from a rise in the
consumer price or similar index) $500,000 for any Fiscal Year.

           SECTION 7.2.8.  Take or Pay Contracts.  Except for any
existing arrangements under the Project Documents, the Borrower
will not, and will not permit any of its Subsidiaries to, enter
into or be a party to any arrangement for the purchase of
materials, supplies, other property or services if such
arrangement by its express terms requires that payment be made by
the Borrower or such Subsidiary regardless of whether such
materials, supplies, other property or services are delivered or
furnished to it.

           SECTION 7.2.9.  Consolidation, Merger, etc.  The Borrower
will not, and will not permit any of its Subsidiaries to,
liquidate or dissolve, consolidate with, or merge into or with,
any other corporation, or purchase or otherwise acquire all or
substantially all of the assets of any Person (or of any division
thereof).  The Borrower will not, and will not permit any of its
Subsidiaries to, create any Subsidiary, except with the prior
written consent of the Agent.

           SECTION 7.2.10.  Asset Dispositions, etc.  The Borrower
will not, and will not permit any of its Subsidiaries to, sell,
transfer, lease, contribute or otherwise convey, or grant
options, warrants or other rights with respect to, all or any
substantial part of its assets (including accounts receivable and


                                      -51-
<PAGE>

capital stock of Subsidiaries) to any Person, except for (i)
those matters described in Item 7.2.10 of the Disclosure Schedule
and (ii) sales in the ordinary course of business and sales of
assets or equipment which is obsolete, worn out or no longer
useful in the operation of the Projects, unless the net book
value of such assets, together with the net book value of all
other assets sold, transferred, leased, contributed or conveyed
otherwise than in the ordinary course of business by the Borrower
or any of its Subsidiaries pursuant to this clause since the
Effective Date, does not exceed $100,000.

           SECTION 7.2.11.  Modification of Certain Agreements.
Except as set forth in Item 7.2.11 to the Disclosure Schedule,
the Borrower will not, and will not permit any of its
Subsidiaries to, consent (to the extent it has any right to give
or withhold consent) to any release of collateral (including any
reserve accounts) securing indebtedness under the Project Loan
Documents, consent to any amendment, supplement, replacement,
waiver or other modification, or any cancellation or termination
(other than upon full performance of the obligations of the
parties thereto), of any of the terms or provisions contained in,
or applicable to, (i) the Purchase Documents; (ii) the Debt
Assignment Documents; (iii) the Project Loan Documents; (iv) the
Project Swap Agreements; (v) the Project Documents; (vi) the
Subordination Agreement (Clear Lake); (vii) the Shareholders
Agreement; (viii) the Equity Support Agreements; or (ix) the
Standstill Agreements, without the prior written consent of the
Agent.  Notwithstanding the foregoing, (w) the Borrower and its
Subsidiaries may release Seller and its Affiliates from their
obligations under the Project Documents and the Project Loan
Documents provided that Calpine (with respect to obligations of
Enron Corp.) and the Borrower (with respect to obligations of the
Seller) are substituted therefor, (x) the Borrower may waive
immaterial defaults under the Project Documents and the Project
Loan Documents, (y) Clear Lake and Cogenron may amend (or
terminate and replace) the Project Documents so long as such
amended (or replacement) Project Documents (I) during the
presently existing term of such Project Documents have terms and
conditions no less favorable to Clear Lake, Cogenron, the
Borrower, the Agent and the Lenders than those in effect on the
Effective Date (after giving effect to any amendments or
terminations to be effective as of such date as described in Item
7.2.11 of the Disclosure Schedule) and (II) thereafter have terms
and conditions which are reasonably likely to produce net cash
flow of Cogenron or Clear Lake, as applicable, which is at least
equal to ninety percent (90%) of that shown in the Financial
Projections, and (z) the Borrower, Clear Lake, Cogenron and the
other parties to the Project Loan Documents may amend (or
terminate and replace) the Project Loan Documents so long as such
amended (or replacement) documents do not (I) extend the date
fixed for the payment of principal of or interest on any loan or


                                      -52-
<PAGE>

fee thereunder, (II) reduce the amount of any such payment of
principal, (III) reduce the rate at which interest is payable
thereon or any fee is payable thereunder, (IV) alter the
obligations to prepay loans thereunder, (V) release any
collateral, guarantees or support agreements or (VI) adversely
affect the perfection or priority of any security interest in any
collateral or the rights of the Borrower as "Lender" or "Agent"
under the Clear Lake Credit Agreement or as "Bank" or "Agent"
under the Cogenron Credit Agreement to foreclose on any
collateral.  Except as provided in Section 7.1.8, the Borrower
and its Subsidiaries will not enter into any additional material
Project Loan Document or (except as described above)Project
Document without the prior written consent of the Agent and the
Lenders.

           To measure the effect of any amended or replacement Project
Documents, the Borrower shall, within a reasonable time prior to
entering into any such amended or replacement Project Document,
prepare and deliver to the Agent pro forma financial projections
showing the effect on an aggregate basis of such amended or
replacement Project Document, together with the then existing
Project Documents and any amended or replacement Project
Documents which have been entered into or are to be entered into
prior to the amendment or replacement then under consideration.

           The Borrower will not, and will not permit any of its
Subsidiaries to, take any action in violation of this Section
7.2.11 notwithstanding its ability to otherwise do so under the
Standstill Agreements.

           SECTION 7.2.12.  Transactions with Affiliates.  The
Borrower will not, and will not permit any of its Subsidiaries
to, enter into, or cause, suffer or permit to exist any
arrangement or contract with any of its other Affiliates unless
such arrangement or contract is fair and equitable to the
Borrower or such Subsidiary and is an arrangement or contract of
the kind which would be entered into by a prudent Person in the
position of the Borrower or such Subsidiary with a Person which
is not one of its Affiliates.  Without limiting the generality of
the foregoing or of Section 7.2.11, the Agent and the Lenders
hereby consent to (i) the performance of operation and
maintenance activities by Affiliates of the Borrower on
substantially the same terms and conditions as contained in the
Operations and Maintenance Agreements, each dated as of August 1,
1995, for the Projects, including any modifications thereto or
replacement agreements described in Item 7.2.11 of the Disclosure
Schedule, (ii) to the performance of administrative services by
Dominion or its Affiliates for EDCC, Clear Lake, Cogenron and EC5
on substantially the same terms and conditions as contained in
the Administrative Services Agreement dated as of August 1, 1995
by and among Enron Capital & Trade Resources Corp., EDCC, Clear


                                      -53-
<PAGE>

Lake, Cogenron and EC5, including any modifications or
replacement agreements thereto described in Item 7.2.11 of the
Disclosure Schedule and (iii) to the purchase and sale of gas by
EDCC, Cogenron and Clear Lake under gas sales agreements between
EDCC and DEI Texas, Inc., between Clear Lake and EDCC, and
between Cogenron and DEI Texas.

           SECTION 7.2.13.  Negative Pledges, Restrictive Agreements,
etc.  The Borrower will not, and will not permit any of its
Subsidiaries to, enter into any agreement (excluding this
Agreement, any other Loan Document and, with respect to
subparagraphs (a) and (b) below, any agreement governing any
Indebtedness permitted either by clause (d) and (e) of Section
7.2.2 as in effect on the Effective Date), prohibiting

                    (a)  the creation or assumption of any Lien upon its
           properties, revenues or assets, whether now owned or
           hereafter acquired;

                    (b)  the ability of any Subsidiary to make any
           payments, directly or indirectly, to the Borrower by way of
           dividends, advances, repayments of loans or advances,
           reimbursements of management and other intercompany
           charges, expenses and accruals or other returns on
           investments, or any other agreement or arrangement which
           restricts the ability of any such Subsidiary to make any
           payment, directly or indirectly, to the Borrower; or

                    (c)  the ability of the Borrower or any other Obligor
           to amend or otherwise modify this Agreement or any other
           Loan Document.

           SECTION 7.2.14.  Change of Name or Office or Fiscal Year.
The Borrower shall not change its name, or the location of its
chief executive office or principal place of business or the
office where it keeps its records concerning the Projects and all
Basic Documents from that existing on the date of this Agreement
and specified in Section 6.19, unless (a) such Borrower shall
have given the Agent at least thirty (30) days' prior written
notice, and (b) all action necessary or advisable in the Agent's
opinion to protect and perfect the Liens and security interests
with respect to the Collateral created by the Collateral Security
Documents shall have been taken.  The Borrower shall not change
its Fiscal Year from the calendar year.

           SECTION 7.2.15.  Pension and Welfare Plans. Neither
Borrower nor any Subsidiary shall create any Pension Plan or
Welfare Plan or become liable for any obligations of any Pension
Plan or Welfare Plan.




                                      -54-
<PAGE>

                                  ARTICLE VIII

                                EVENTS OF DEFAULT

           SECTION 8.1.  Listing of Events of Default.  Each of the
following events or occurrences described in this Section 8.1
shall constitute an "Event of Default".

           SECTION 8.1.1.  Non-Payment of Obligations.  The Borrower
shall default in the payment or prepayment when due of any
principal of or interest on any Loan, or the Borrower shall
default (and such default shall continue unremedied for a period
of five days) in the payment when due of any other Obligation.

           SECTION 8.1.2.  Breach of Warranty.  Any representation or
warranty of the Borrower or any other Obligor made or deemed to
be made hereunder or in any other Loan Document executed by it or
any other writing or certificate furnished by or on behalf of the
Borrower or any other Obligor to the Agent or any Lender for the
purposes of or in connection with this Agreement or any such
other Loan Document (including any certificates delivered
pursuant to Article V) is or shall be incorrect when made in any
material respect.

           SECTION 8.1.3.  Non-Performance of Certain Covenants and
Obligations.  The Borrower shall default in the due performance
and observance of any of its obligations under Section 7.2
(except for Section 7.2.4(a)) and such default shall continue
unremedied for a period of 10 days after the earlier of (i)
knowledge thereof by the Borrower and (ii) notice thereof has
been given to the Borrowers by the Agent or any Lender.

           SECTION 8.1.4.  Non-Performance of Other Covenants and
Obligations.  Any Obligor shall default in the due performance
and observance of any other agreement contained herein or in any
other Loan Document executed by it, and such default shall
continue unremedied for a period of 30 days after notice thereof
shall have been given to the Borrower by the Agent or any Lender
(or such longer period as the Required Lenders in their
reasonable discretion, may agree, provided that such Obligor has
commenced such cure within such 30 day period and thereafter
diligently pursues such cure to completion).

           SECTION 8.1.5.  Default on Other Indebtedness.  A default
shall occur in the payment when due (subject to any applicable
grace period), whether by acceleration or otherwise, of any
Indebtedness (other than Indebtedness described in Section 8.1.1)
of the Borrower or any of its Subsidiaries having a principal
amount, individually or in the aggregate, in excess of $200,000,
or a default shall occur in the performance or observance of any
obligation or condition with respect to such Indebtedness if the


                                      -55-
<PAGE>

effect of such default is to accelerate the maturity of any such
Indebtedness or such default shall continue unremedied for any
applicable period of time sufficient to permit the holder or
holders of such Indebtedness, or any trustee or agent for such
holders, to cause such Indebtedness to become due and payable
prior to its expressed maturity.

           SECTION 8.1.6.  Judgments.  Any judgment or order for the
payment of money in excess of $500,000 which is not subject to
indemnification from Seller, Dominion or their respective
Affiliates (provided that any such Person has acknowledged its
indemnification liability and has the financial capability to pay
its indemnification liability) or which is not fully covered by
insurance (subject to customary deductible amounts) shall be
rendered against the Borrower or any of its Subsidiaries and
either

                    (a)  enforcement proceedings shall have been commenced
           by any creditor upon such judgment or order; or

                    (b)  there shall be any period of 20 consecutive days
           during which a stay of enforcement of such judgment or
           order, by reason of a pending appeal or otherwise, shall
           not be in effect.

           SECTION 8.1.7.  Control of the Borrower.  Any Change in
Control shall occur.

           SECTION 8.1.8.  Bankruptcy, Insolvency, etc.  The Borrower
or any of its Subsidiaries (other than EC5) or any other Obligor
shall

                    (a)  become insolvent or generally fail to pay, or
           admit in writing its inability or unwillingness to pay,
           debts as they become due;

                    (b)  apply for, consent to, or acquiesce in, the
           appointment of a trustee, receiver, sequestrator or other
           custodian for the Borrower or any of its Subsidiaries or
           any other Obligor or any property of any thereof, or make a
           general assignment for the benefit of creditors;

                    (c)  in the absence of such application, consent or
           acquiescence, permit or suffer to exist the appointment of
           a trustee, receiver, sequestrator or other custodian for
           the Borrower or any of its Subsidiaries or any other
           Obligor or for a substantial part of the property of any
           thereof, and such trustee, receiver, sequestrator or other
           custodian shall not be discharged within 60 days, provided
           that the Borrower, each Subsidiary and each other Obligor
           hereby expressly authorizes the Agent and each Lender to


                                      -56-
<PAGE>

           appear in any court conducting any relevant proceeding
           during such 60-day period to preserve, protect and defend
           their rights under the Loan Documents;

                    (d)  permit or suffer to exist the commencement of any
           bankruptcy, reorganization, debt arrangement or other case
           or proceeding under any bankruptcy or insolvency law, or
           any dissolution, winding up or liquidation proceeding, in
           respect of the Borrower or any of its Subsidiaries or any
           other Obligor, and, if any such case or proceeding is not
           commenced by the Borrower or such Subsidiary or such other
           Obligor, such case or proceeding shall be consented to or
           acquiesced in by the Borrower or such Subsidiary or such
           other Obligor or shall result in the entry of an order for
           relief or shall remain for 60 days undismissed, provided
           that the Borrower, each Subsidiary and each other Obligor
           hereby expressly authorizes the Agent and each Lender to
           appear in any court conducting any such case or proceeding
           during such 60-day period to preserve, protect and defend
           their rights under the Loan Documents; or

                    (e)  take any action authorizing, or in furtherance
           of, any of the foregoing.

           SECTION 8.1.9.  Impairment of Security, etc.  Any Loan
Document, or any Lien granted thereunder, shall (except in
accordance with its terms), in whole or in part, terminate, cease
to be effective or cease to be the legally valid, binding and
enforceable obligation of any Obligor party thereto; the
Borrower, any other Obligor or any other party shall, directly or
indirectly, contest in any manner such effectiveness, validity,
binding nature or enforceability; or any Lien securing any
Obligation shall, in whole or in part, cease to be a perfected
first priority Lien without the fault or omission of the Agent or
any Lender, subject only to those exceptions expressly permitted
by such Loan Document.

           SECTION 8.1.10.  Public Utility Regulation.  The Borrower
or any of its Subsidiaries or the Agent or any Lender shall, as a
result of any transaction contemplated hereby, become subject to:
regulation as a public utility, electric utility company or
holding company under the Public Utility Holding Company Act of
1935, as amended; regulation as a public utility under the
Federal Power Act, as amended, except for such regulation by the
Federal Energy Regulatory commission as may occur under sections
of such Act specified in 18 C.F.R. Sec. 292.601(c); or financial,
organizational or rate regulation as an electric utility,
electric company, public service company, public utility, or any
other similar entity under any state law or regulation.



                                      -57-
<PAGE>

           SECTION 8.2.  Action if Bankruptcy.  If any Event of
Default described in clauses (a) through (d) of Section 8.1.8
shall occur with respect to the Borrower or any Subsidiary (other
than EC5) or any other Obligor, the Commitments (if not
theretofore terminated) shall automatically terminate and the
outstanding principal amount of all outstanding Loans and all
other Obligations shall automatically be and become immediately
due and payable, without notice or demand.

           SECTION 8.3.  Action if Other Event of Default.  If any
Event of Default (other than any Event of Default described in
clauses (a) through (d) of Section 8.1.8 with respect to the
Borrower or any Subsidiary or any other Obligor) shall occur for
any reason, whether voluntary or involuntary, and be continuing,
the Agent, upon the direction of the Required Lenders, shall by
notice to the Borrower declare all or any portion of the
outstanding principal amount of the Loans and other Obligations
to be due and payable and/or the Commitments (if not theretofore
terminated) to be terminated, whereupon the full unpaid amount of
such Loans and other Obligations which shall be so declared due
and payable shall be and become immediately due and payable,
without further notice, demand or presentment, and/or, as the
case may be, the Commitments shall terminate.

           SECTION 8.4.  Restrictions on Off-Sets. The Borrower will
not, and will not permit any of its Subsidiaries to, take any
action or fail to take any action or allow to occur any reduction
in the amounts owing under the Clear Lake Credit Agreement or the
Cogenron Credit Agreement pursuant to the off-set provisions
under the Standstill Agreements at any time after the occurrence
of an Event of Default.


                                   ARTICLE IX

                                    THE AGENT

           SECTION 9.1.  Actions.  Each Lender hereby appoints
Scotiabank as its Agent under and for purposes of this Agreement,
the Notes and each other Loan Document.  Each Lender authorizes
the Agent to act on behalf of such Lender under this Agreement,
the Notes and each other Loan Document and, in the absence of
other written instructions from the Required Lenders received
from time to time by the Agent (with respect to which the Agent
agrees that it will comply, except as otherwise provided in this
Section or as otherwise advised by counsel), to exercise such
powers hereunder and thereunder as are specifically delegated to
or required of the Agent by the terms hereof and thereof,
together with such powers as may be reasonably incidental
thereto.  Each Lender hereby indemnifies (which indemnity shall
survive any termination of this Agreement) the Agent, pro rata


                                      -58-
<PAGE>

according to such Lender's Percentage, from and against any and
all liabilities, obligations, losses, damages, claims, costs or
expenses of any kind or nature whatsoever which may at any time
be imposed on, incurred by, or asserted against, the Agent in any
way relating to or arising out of this Agreement, the Notes and
any other Loan Document, including reasonable attorneys' fees,
and as to which the Agent is not reimbursed by the Borrower;
provided, however, that no Lender shall be liable for the payment
of any portion of such liabilities, obligations, losses, damages,
claims, costs or expenses which are determined by a court of
competent jurisdiction in a final proceeding to have resulted
solely from the Agent's gross negligence or wilful misconduct.
The Agent shall not be required to take any action hereunder,
under the Notes or under any other Loan Document, or to prosecute
or defend any suit in respect of this Agreement, the Notes or any
other Loan Document, unless it is indemnified hereunder to its
satisfaction.  If any indemnity in favor of the Agent shall be or
become, in the Agent's determination, inadequate, the Agent may
call for additional indemnification from the Lenders and cease to
do the acts indemnified against hereunder until such additional
indemnity is given.

           SECTION 9.2.  Funding Reliance, etc.  Unless the Agent
shall have been notified by telephone, confirmed in writing, by
any Lender by 5:00 p.m., San Francisco time, on the day prior to
a Borrowing that such Lender will not make available the amount
which would constitute its Percentage of such Borrowing on the
date specified therefor, the Agent may assume that such Lender
has made such amount available to the Agent and, in reliance upon
such assumption, make available to the Borrower a corresponding
amount.  If and to the extent that such Lender shall not have
made such amount available to the Agent, such Lender and the
Borrower severally agree to repay the Agent forthwith on demand
such corresponding amount together with interest thereon, for
each day from the date the Agent made such amount available to
the Borrower to the date such amount is repaid to the Agent, at
the interest rate applicable at the time to Loans comprising such
Borrowing.

           SECTION 9.3.  Exculpation.  Neither the Agent nor any of
its directors, officers, employees or agents shall be liable to
any Lender for any action taken or omitted to be taken by it
under this Agreement or any other Loan Document, or in connection
herewith or therewith, except for its own wilful misconduct or
gross negligence, nor responsible for any recitals or warranties
herein or therein, nor for the effectiveness, enforceability,
validity or due execution of this Agreement or any other Loan
Document, nor for the creation, perfection or priority of any
Liens purported to be created by any of the Loan Documents, or
the validity, genuineness, enforceability, existence, value or
sufficiency of any collateral security, nor to make any inquiry


                                      -59-
<PAGE>

respecting the performance by the Borrower of its obligations
hereunder or under any other Loan Document.  Any such inquiry
which may be made by the Agent shall not obligate it to make any
further inquiry or to take any action.  The Agent shall be
entitled to rely upon advice of counsel concerning legal matters
and upon any notice, consent, certificate, statement or writing
which the Agent believes to be genuine and to have been presented
by a proper Person.

           SECTION 9.4.  Successor.  The Agent may resign as such at
any time upon at least 30 days' prior notice to the Borrower and
all Lenders.  If the Agent at any time shall resign, the Required
Lenders may appoint another Lender as a successor Agent which
shall thereupon become the Agent hereunder.  If no successor
Agent shall have been so appointed by the Required Lenders, and
shall have accepted such appointment, within 30 days after the
retiring Agent's giving notice of resignation, then the retiring
Agent may, on behalf of the Lenders, appoint a successor Agent,
which shall be one of the Lenders or a commercial banking
institution organized under the laws of the U.S. (or any State
thereof) or a U.S. branch or agency of a commercial banking
institution, and having a combined capital and surplus of at
least $500,000,000.  Upon the acceptance of any appointment as
Agent hereunder by a successor Agent, such successor Agent shall
be entitled to receive from the retiring Agent such documents of
transfer and assignment as such successor Agent may reasonably
request, and shall thereupon succeed to and become vested with
all rights, powers, privileges and duties of the retiring Agent,
and the retiring Agent shall be discharged from its duties and
obligations under this Agreement.  After any retiring Agent's
resignation hereunder as the Agent, the provisions of

                    (a)  this Article IX shall inure to its benefit as to
           any actions taken or omitted to be taken by it while it was
           the Agent under this Agreement; and

                    (b)  Section 10.3 (with respect to expenses incurred
           prior to resignation) and Section 10.4 shall continue to
           inure to its benefit.

           SECTION 9.5.  Loans by Scotiabank.  Scotiabank shall have
the same rights and powers with respect to (x) the Loans made by
it or any of its Affiliates, and (y) the Notes held by it or any
of its Affiliates as any other Lender and may exercise the same
as if it were not the Agent.  Scotiabank and its Affiliates may
accept deposits from, lend money to, and generally engage in any
kind of business with the Borrower or any Subsidiary or Affiliate
of the Borrower as if Scotiabank were not the Agent hereunder.

           SECTION 9.6.  Credit Decisions.  Each Lender acknowledges
that it has, independently of the Agent and each other Lender,


                                      -60-
<PAGE>

and based on such Lender's review of the financial information of
the Borrower, this Agreement, the other Loan Documents (the terms
and provisions of which being satisfactory to such Lender) and
such other documents, information and investigations as such
Lender has deemed appropriate, made its own credit decision to
extend its Commitment.  Each Lender also acknowledges that it
will, independently of the Agent and each other Lender, and based
on such other documents, information and investigations as it
shall deem appropriate at any time, continue to make its own
credit decisions as to exercising or not exercising from time to
time any rights and privileges available to it under this
Agreement or any other Loan Document.

           SECTION 9.7.  Copies, etc.  The Agent shall give prompt
notice to each Lender of each notice or request required or
permitted to be given to the Agent by the Borrower pursuant to
the terms of this Agreement (unless concurrently delivered to the
Lenders by the Borrower).  The Agent will distribute to each
Lender each document or instrument received for its account and
copies of all other communications received by the Agent from the
Borrower for distribution to the Lenders by the Agent in
accordance with the terms of this Agreement.


                                    ARTICLE X

                            MISCELLANEOUS PROVISIONS

           SECTION 10.1.  Waivers, Amendments, etc.  The provisions of
this Agreement and of each other Loan Document may from time to
time be amended, modified or waived, if such amendment,
modification or waiver is in writing and consented to by the
Borrower and the Required Lenders; provided, however, that no
such amendment, modification or waiver which would:

                    (a)  modify any requirement hereunder that any
           particular action be taken by all the Lenders or by the
           Required Lenders shall be effective unless consented to by
           each Lender;

                    (b)  modify this Section 10.1, change the definition
           of "Required Lenders", increase the Commitment Amount or
           the Percentage of any Lender, reduce any fees described in
           Article III, release any Collateral, except as otherwise
           specifically provided in Section 7.2.10, shall be made
           without the consent of each Lender and each holder of a
           Note;

                    (c)  extend the due date for, or reduce the amount of,
           any scheduled repayment or prepayment of principal of or
           interest on any Loan (or reduce the principal amount of or


                                      -61-
<PAGE>

           rate of interest on any Loan) shall be made without the
           consent of each Lender; or

                    (d)  affect adversely the interests, rights or
           obligations of the Agent qua the Agent shall be made
           without consent of the Agent.

No failure or delay on the part of the Agent, any Lender or the
holder of any Note in exercising any power or right under this
Agreement or any other Loan Document shall operate as a waiver
thereof, nor shall any single or partial exercise of any such
power or right preclude any other or further exercise thereof or
the exercise of any other power or right.  No notice to or demand
on the Borrower in any case shall entitle it to any notice or
demand in similar or other circumstances.  No waiver or approval
by the Agent, any Lender or the holder of any Note under this
Agreement or any other Loan Document shall, except as may be
otherwise stated in such waiver or approval, be applicable to
subsequent transactions.  No waiver or approval hereunder shall
require any similar or dissimilar waiver or approval thereafter
to be granted hereunder.

           SECTION 10.2.  Notices.  All notices and other
communications provided to any party hereto under this Agreement
or any other Loan Document shall be in writing or by facsimile
and addressed, delivered or transmitted to such party at its
address or facsimile number set forth below its signature hereto
or set forth in the Lender Assignment Agreement or at such other
address or facsimile number as may be designated by such party in
a notice to the other parties.  Any notice, if mailed and
properly addressed with postage prepaid or if properly addressed
and sent by pre-paid courier service, shall be deemed given when
received; any notice, if transmitted by facsimile, shall be
deemed given when transmitted.

           SECTION 10.3.  Payment of Costs and Expenses.  The Borrower
agrees to pay on demand all reasonable expenses of the Agent
(including the fees and out-of-pocket expenses of counsel to the
Agent and of local counsel, if any, who may be retained by
counsel to the Agent) in connection with

                    (a)  the negotiation, preparation, execution and
           delivery of this Agreement and of each other Loan Document,
           including schedules and exhibits, and any amendments,
           waivers, consents, supplements or other modifications to
           this Agreement or any other Loan Document as may from time
           to time hereafter be required, whether or not the
           transactions contemplated hereby are consummated; and

               (b)  the filing, recording, refiling or rerecording of
           the Pledge Agreement and the Security Agreements and/or any


                                      -62-
<PAGE>

           Uniform Commercial Code financing statements relating
           thereto and all amendments, supplements and modifications
           to any thereof and any and all other documents or
           instruments of further assurance required to be filed or
           recorded or refiled or rerecorded by the terms hereof or of
           the Pledge Agreement or the Security Agreements; and

                    (c)  the preparation and review of the form of any
           document or instrument relevant to this Agreement or any
           other Loan Document.

The Borrower further agrees to pay, and to save the Agent and the
Lenders harmless from all liability for, any stamp or other taxes
(other than income taxes) which may be payable in connection with
the execution or delivery of this Agreement, the borrowings
hereunder, or the issuance of the Notes or any other Loan
Documents.  The Borrower also agrees to reimburse the Agent and
each Lender upon demand for all reasonable out-of-pocket expenses
(including attorneys' fees and legal expenses) incurred by the
Agent or such Lender in connection with (x) the negotiation of
any restructuring or "work-out", whether or not consummated, of
any Obligations and (y) the enforcement of any Obligations.

           SECTION 10.4.  Indemnification.  In consideration of the
execution and delivery of this Agreement by each Lender and the
extension of the Commitments, the Borrower hereby indemnifies,
exonerates and holds the Agent and each Lender and each of their
respective officers, directors, employees and agents
(collectively, the "Indemnified Parties") free and harmless from
and against any and all actions, causes of action, suits, losses,
costs, liabilities and damages, and expenses incurred in
connection therewith (irrespective of whether any such
Indemnified Party is a party to the action for which
indemnification hereunder is sought), including reasonable
attorneys' fees and disbursements (collectively, the "Indemnified
Liabilities"), incurred by the Indemnified Parties or any of them
as a result of, or arising out of, or relating to

                    (a)  any transaction financed or to be financed in
           whole or in part, directly or indirectly, with the proceeds
           of any Loan;

                    (b)  the entering into and performance of this
           Agreement and any other Loan Document by any of the
           Indemnified Parties (including any action brought by or on
           behalf of the Borrower as the result of any determination
           by the Required Lenders pursuant to Article V not to fund
           any Borrowing but not including any breach of this
           Agreement or any other Loan Documents by Agent or any of
           the Lenders);



                                      -63-
<PAGE>

               (c)  any investigation, litigation or proceeding
           related to any acquisition or proposed acquisition by the
           Borrower or any of its Subsidiaries of all or any portion
           of the stock or assets of any Person, whether or not the
           Agent or such Lender is party thereto;

                    (d)  any investigation, litigation or proceeding
           related to any environmental cleanup, audit, compliance or
           other matter relating to the protection of the environment
           or the Release by the Borrower or any of its Subsidiaries
           of any Hazardous Material; or

                    (e)  the presence on or under, or the escape, seepage,
           leakage, spillage, discharge, emission, discharging or
           releases from, any real property owned or operated by the
           Borrower or any Subsidiary thereof of any Hazardous
           Material (including any losses, liabilities, damages,
           injuries, costs, expenses or claims asserted or arising
           under any Environmental Law), regardless of whether caused
           by, or within the control of, the Borrower or such
           Subsidiary,

except for any such Indemnified Liabilities arising for the
account of a particular Indemnified Party by reason of the
relevant Indemnified Party's gross negligence or wilful
misconduct.  If and to the extent that the foregoing undertaking
may be unenforceable for any reason, the Borrower hereby agrees
to make the maximum contribution to the payment and satisfaction
of each of the Indemnified Liabilities which is permissible under
applicable law.

           SECTION 10.5.  Survival.  The obligations of the Borrower
under Sections 4.3, 4.4, 4.5, 4.6, 10.3 and 10.4, and the
obligations of the Lenders under Section 9.1, shall in each case
survive any termination of this Agreement, the payment in full of
all Obligations and the termination of all Commitments.  The
representations and warranties made by each Obligor in this
Agreement and in each other Loan Document shall survive the
execution and delivery of this Agreement and each such other Loan
Document.

           SECTION 10.6.  Severability.  Any provision of this
Agreement or any other Loan Document which is prohibited or
unenforceable in any jurisdiction shall, as to such provision and
such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the
remaining provisions of this Agreement or such Loan Document or
affecting the validity or enforceability of such provision in any
other jurisdiction.



                                      -64-
<PAGE>

           SECTION 10.7.  Headings.  The various headings of this
Agreement and of each other Loan Document are inserted for
convenience only and shall not affect the meaning or
interpretation of this Agreement or such other Loan Document or
any provisions hereof or thereof.

           SECTION 10.8.  Execution in Counterparts, Effectiveness,
etc.  This Agreement may be executed by the parties hereto in
several counterparts, each of which shall be executed by the
Borrower and the Agent and be deemed to be an original and all of
which shall constitute together but one and the same agreement.
This Agreement shall become effective when counterparts hereof
executed on behalf of the Borrower and each Lender (or notice
thereof satisfactory to the Agent) shall have been received by
the Agent and notice thereof shall have been given by the Agent
to the Borrower and each Lender.

           SECTION 10.9.  Governing Law; Entire Agreement.  THIS
AGREEMENT, THE NOTES AND EACH OTHER LOAN DOCUMENT SHALL EACH BE
DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL
LAWS OF THE STATE OF NEW YORK.  This Agreement, the Notes and the
other Loan Documents constitute the entire understanding among
the parties hereto with respect to the subject matter hereof and
supersede any prior agreements, written or oral, with respect
thereto.

           SECTION 10.10.  Successors and Assigns.  This Agreement
shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns;
provided, however, that:

                    (a)  the Borrower may not assign or transfer its
           rights or obligations hereunder without the prior written
           consent of the Agent and all Lenders; and

                    (b)  the rights of sale, assignment and transfer of
           the Lenders are subject to Section 10.11.

           SECTION 10.11.  Sale and Transfer of Loans and Note;
Participations in Loans and Note.  Each Lender may assign, or
sell participations in, its Loans and Commitment to one or more
other Persons in accordance with this Section 10.11.

           SECTION 10.11.1.  Assignments.  Any Lender,

                    (a)  with the written consents of the Borrower and the
           Agent (which consents shall not be unreasonably delayed or
           withheld and which consent, in the case of the Borrower,
           shall be deemed to have been given in the absence of a
           written notice delivered by the Borrower to the Agent, on
           or before the tenth Business Day after receipt by the


                                      -65-
<PAGE>

           Borrower of such Lender's request for consent, stating, in
           reasonable detail, the reasons why the Borrower proposes to
           withhold such consent) may at any time assign and delegate
           to one or more commercial banks or other financial
           institutions; and

                    (b)  with notice to the Borrower and the Agent, but
           without the consent of the Borrower or the Agent, may
           assign and delegate to any of its Affiliates or to any
           other Lender

(each Person described in either of the foregoing clauses as
being the Person to whom such assignment and delegation is to be
made, being hereinafter referred to as an "Assignee Lender"), all
or any fraction of such Lender's total Loans and Commitment
(which assignment and delegation shall be of a constant, and not
a varying, percentage of all the assigning Lender's Loans and
Commitment) in a minimum aggregate amount of $10,000,000;
provided, however, that any such Assignee Lender will comply, if
applicable, with the provisions contained in the last sentence of
Section 4.6 and further, provided, however, that, the Borrower,
each other Obligor and the Agent shall be entitled to continue to
deal solely and directly with such Lender in connection with the
interests so assigned and delegated to an Assignee Lender until

                    (c)  written notice of such assignment and delegation,
           together with payment instructions, addresses and related
           information with respect to such Assignee Lender, shall
           have been given to the Borrower and the Agent by such
           Lender and such Assignee Lender;

                    (d)  such Assignee Lender shall have executed and
           delivered to the Borrower and the Agent a Lender Assignment
           Agreement, accepted by the Agent; and

                    (e)  the processing fees described below shall have
           been paid.

From and after the date that the Agent accepts such Lender
Assignment Agreement, (x) the Assignee Lender thereunder shall be
deemed automatically to have become a party hereto and to the
extent that rights and obligations hereunder have been assigned
and delegated to such Assignee Lender in connection with such
Lender Assignment Agreement, shall have the rights and
obligations of a Lender hereunder and under the other Loan
Documents, and (y) the assignor Lender, to the extent that rights
and obligations hereunder have been assigned and delegated by it
in connection with such Lender Assignment Agreement, shall be
released from its obligations hereunder and under the other Loan
Documents with respect to obligations arising after the date of
assignment.  Within five Business Days after its receipt of


                                      -66-
<PAGE>

notice that the Agent has received an executed Lender Assignment
Agreement, the Borrower shall execute and deliver to the Agent
(for delivery to the relevant Assignee Lender) a new Note
evidencing such Assignee Lender's assigned Loans and Commitment
and, if the assignor Lender has retained Loans and its Commitment
hereunder, a replacement Note in the principal amount of the
Loans and Commitment retained by the assignor Lender hereunder
(such Note to be in exchange for, but not in payment of, that
Note then held by such assignor Lender).  Each such Note shall be
dated the date of the predecessor Note.  The assignor Lender
shall mark the predecessor Note "exchanged" and deliver it to the
Borrower.  Accrued interest on that part of the predecessor Note
evidenced by the new Note, and accrued fees, shall be paid as
provided in the Lender Assignment Agreement.  Accrued interest on
that part of the predecessor Note evidenced by the replacement
Note shall be paid to the assignor Lender.  Accrued interest and
accrued fees shall be paid at the same time or times provided in
the predecessor Note and in this Agreement.  Such assignor Lender
or such Assignee Lender must also pay a processing fee to the
Agent upon delivery of any Lender Assignment Agreement in the
amount of $3,000.  Any attempted assignment and delegation not
made in accordance with this Section 10.11.1 shall be null and
void.

           SECTION 10.11.2.  Participations.  Any Lender may at any
time sell to one or more commercial banks or other Persons (each
of such commercial banks and other Persons being herein called a
"Participant") participating interests in any of the Loans,
Commitment, or other interests of such Lender hereunder;
provided, however, that

                    (a)  no participation contemplated in this
           Section 10.11 shall relieve such Lender from its Commitment
           or its other obligations hereunder or under any other Loan
           Document;

                    (b)  such Lender shall remain solely responsible for
           the performance of its Commitment and such other
           obligations;

                    (c)  the Borrower and each other Obligor and the Agent
           shall continue to deal solely and directly with such Lender
           in connection with such Lender's rights and obligations
           under this Agreement and each of the other Loan Documents;

                    (d)  no Participant, unless such Participant is an
           Affiliate of such Lender, or is itself a Lender, shall be
           entitled to require such Lender to take or refrain from
           taking any action hereunder or under any other Loan
           Document, except that such Lender may agree with any
           Participant that such Lender will not, without such


                                      -67-
<PAGE>

           Participant's consent, take any actions of the type
           described in clause (b) or (c) of Section 10.1; and

                    (e)  the Borrower shall not be required to pay any
           amount under Section 4.6 that is greater than the amount
           which it would have been required to pay had no
           participating interest been sold.

The Borrower acknowledges and agrees that each Participant, for
purposes of Sections 4.3, 4.4, 4.5, 4.6, 4.8, 4.9, 10.3 and 10.4,
shall be considered a Lender.

           SECTION 10.12.  Other Transactions.  Nothing contained
herein shall preclude the Agent or any other Lender from engaging
in any transaction, in addition to those contemplated by this
Agreement or any other Loan Document, with the Borrower or any of
its Affiliates in which the Borrower or such Affiliate is not
restricted hereby from engaging with any other Person.

           SECTION 10.13.  Forum Selection and Consent to Jurisdiction
and Agent for Service of Process.

           (a)  ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER,
OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT,
OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER
VERBAL OR WRITTEN) OR ACTIONS OF THE AGENT, THE LENDERS OR THE
BORROWER SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE
COURTS OF THE STATE OF NEW YORK OR IN THE UNITED STATES DISTRICT
COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; PROVIDED, HOWEVER,
THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER
PROPERTY may BE BROUGHT, AT THE AGENT'S OPTION, IN THE COURTS OF
ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY may BE
FOUND.  THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO
THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF
THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW
YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE
AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED
THEREBY IN CONNECTION WITH SUCH LITIGATION.  THE BORROWER FURTHER
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY PERSONAL
SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK OR IN ANY MANNER
PROVIDED BY LAW.  THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION
WHICH IT may HAVE OR HEREAFTER may HAVE TO THE LAYING OF VENUE OF
ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE
AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.  TO THE EXTENT THAT THE BORROWER HAS OR
HEREAFTER may ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT
OF FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE,
ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR
OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE BORROWER


                                      -68-
<PAGE>

HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS
OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.

                    (b)      Nothing contained in this section shall preclude
the Agent or the Lenders from bringing any legal suit, action or
proceeding against the Borrower in the courts of any jurisdiction
where the Borrower may be found or located.  To the extent
permitted by the applicable laws of any such jurisdiction, the
Borrower hereby irrevocably submits to the jurisdiction of any
such court and expressly waives, in respect of any such suit,
action or proceeding, the jurisdiction of any courts which now or
hereafter, by reason of its present or future domiciles, or
otherwise, may be available to it.

           SECTION 10.14.  Waiver of Jury Trial.  THE AGENT, THE
LENDERS AND THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE ANY RIGHTS THEY may HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE AGENT, THE LENDERS
OR THE BORROWER.  THE BORROWER ACKNOWLEDGES AND AGREES THAT IT
HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION
(AND EACH OTHER PROVISION OF EACH OTHER LOAN DOCUMENT TO WHICH IT
IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR
THE AGENT AND THE LENDERS ENTERING INTO THIS AGREEMENT AND EACH
SUCH OTHER LOAN DOCUMENT.

           SECTION 10.15.  Confidentiality.  The Lenders shall hold
all non-public information (which has been identified as such by
the Borrower) obtained pursuant to the requirements of this
Agreement in accordance with their customary procedures for
handling confidential information of this nature and in
accordance with safe and sound banking practices and in any event
may make disclosure to any of their examiners, their Affiliates,
outside auditors, counsel and other professional advisors in
connection with this Agreement or as reasonably required by any
bona fide transferee, participant or assignee or as required or
requested by any governmental agency or representative thereof or
pursuant to legal process; provided, however, that

                    (a)  unless specifically prohibited by applicable law
           or court order, each Lender shall notify the Borrower of
           any request by any governmental agency or representative
           thereof (other than any such request in connection with an
           examination of the financial condition of such Lender by
           such governmental agency) for disclosure of any such non-
           public information prior to disclosure of such information;

                    (b)  prior to any such disclosure pursuant to this
           Section 10.15, each Lender shall require any such bona fide


                                      -69-
<PAGE>

           transferee, participant and assignee receiving a disclosure
           of non-public information to agree in writing

                             (i)  to be bound by this Section 10.15;

                             (ii)  to require such Person to require any other
                    Person to whom such Person discloses such non-public
                    information to be similarly bound by this
                    Section 10.15; and

                    (c)  except as may be required by an order of a court
           of competent jurisdiction and to the extent set forth
           therein, no Lender shall be obligated or required to return
           any materials furnished by the Borrower or any Subsidiary.

           SECTION 10.16.  Limitations on Recourse.  The Agent and the
Lenders agree that (except as hereinafter set forth) their rights
in respect of the Loans, and any claim or liability under any
Loan Document asserted against the Borrower by the Agent or any
Lender shall be limited to satisfaction out of, and enforcement
against the Collateral, and that after the Agent and the Lenders
have exhausted the Collateral, the Borrower shall have no
liability to the Agent or any Lender for the payment of any sums
now or hereafter owing by the Borrower under any Loan Document.

           It is expressly understood and agreed that nothing
contained in this Section 10.16 shall in any manner or any way
constitute (or be deemed to be) a release of any Obligation
secured by, or impair the enforceability of, the Liens and
security interests and possessory rights created by or arising
from this Agreement and the Collateral Security Documents or
restrict the remedies available to the Agent and the Lenders to
realize upon the Collateral.  In addition, this Section 10.16
shall not affect or diminish any legal rights of (i) any Person
against any other Person arising from fraud, waste,
misappropriation or misapplication of any funds or (ii) of the
Agent and the Lenders against any Obligor (other than the
Borrower) for breach of any Loan Document.



                                      -70-
<PAGE>

           IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto
duly authorized as of the day and year first above written.


                                    CALPINE FINANCE COMPANY


                                    By
                                            Title:

                                    Address:  50 West San Fernando Street
                                              San Jose, California 95113

                                    Facsimile No.:  408-995-0505

                                    Attention:  Asset Manager



                                    THE BANK OF NOVA SCOTIA, as Agent


                                    By
                                      Title:

                                    Address:  580 California Street
                                                     Suite 2100
                                              San Francisco, California  94104

                                    Attention:  Eric Knight

                                    with a copy to:

                                              The Bank of Nova Scotia
                                              600 Peachtree Street N.E.
                                              Suite 2700
                                              Atlanta, GA  30308
                                              Attention:  Norman Campbell
                                                          Administrative Agent -
                                                          Loan Administration


                                             Facsimile No.:  (404) 888-8998




                                      -71-
<PAGE>


                               PERCENTAGE LENDERS

                             THE BANK OF NOVA SCOTIA
                                      ___%


                                            By
                                                      Title:

                                            Address: 580 California Street
                                                     Suite 2100
                                                     San Francisco, CA  94104

                                            Facsimile No.:   (415) 397-0791

                                            Attention:  Eric Knight

                                            with a copy to:

                                             The Bank of Nova Scotia
                                             600 Peachtree Street N.E.
                                             Suite 2700
                                             Atlanta, GA  30308
                                             Attention:  Norman Campbell
                                                         Administrative Agent -
                                                         Loan Administration


                                             Facsimile No.:   (404) 888-8998


                                            Domestic Office:

                                                      580 California Street
                                                      Suite 2100
                                                      San Francisco, CA  94104

                                            Facsimile No.:  (415) 397-0791

                                            Attention:  Eric Knight


                                            LIBOR Office:
                                                     580 California Street
                                                     Suite 2100
                                                     San Francisco, CA  94104

                                            Facsimile No.:  (415) 397-0791

                                            Attention:  Eric Knight


                                      -72-
<PAGE>




                                      -73-
<PAGE>

                                TABLE OF CONTENTS

SECTION                                                                     PAGE
||

ARTICLE I
                         DEFINITIONS AND ACCOUNTING TERMS......................3
         1.1.            Defined Terms.........................................3
         1.2.            Use of Defined Terms.................................20
         1.3.            Cross-References.....................................21
         1.4.            Accounting and Financial Determinations..............21

ARTICLE II
                         COMMITMENTS, BORROWING PROCEDURES AND NOTES..........21
         2.1.            Commitments..........................................21
         2.2.            Borrowing Procedure..................................21
         2.3.            Continuation and Conversion Elections................22
         2.4.            Funding..............................................22
         2.5.            Notes................................................23

ARTICLE III
                         REPAYMENTS, PREPAYMENTS, INTEREST AND FEES...........23
         3.1.            Repayments and Prepayments...........................23
         3.2.            Interest Provisions..................................24
         3.2.1.          Rates................................................24
         3.2.2.          Post-Maturity Rates..................................25
         3.2.3.          Payment Dates........................................26

ARTICLE IV
                         CERTAIN LIBO RATE AND OTHER PROVISIONS...............26
         4.1.            LIBO Rate Lending Unlawful...........................26
         4.2.            Deposits Unavailable.................................27
         4.3.            Increased LIBO Rate Loan Costs, etc..................27
         4.4.            Funding Losses.......................................27
         4.5.            Increased Capital Costs..............................28
         4.6.            Taxes................................................28
         4.7.            Payments, Computations, etc..........................30
         4.8.            Sharing of Payments..................................30
         4.9.            Actions of Affected Lenders..........................31
         4.10.           Use of Proceeds......................................31

ARTICLE V
                         CONDITIONS TO BORROWING..............................31
         5.1.            Initial Borrowing....................................32
         5.1.1.          Stock Purchase Consummated...........................32
         5.1.2.          Debt Acquisitions Consummated........................32
         5.1.3.          Consents.............................................32
         5.1.4.          Government Approvals.................................32
         5.1.5.          Project Swap Agreements..............................33
         5.1.6.          Calpine Equity Contribution..........................33
         5.1.7.          Calpine Subordinated Indebtedness....................33


                                       -i-
<PAGE>
                          TABLE OF CONTENTS, continued

SECTION                                                                     PAGE


         5.1.8.          Resolutions, etc.....................................33
         5.1.9.          Delivery of Notes....................................33
         5.1.10.         Pledge Agreement.....................................33
         5.1.11.         Deposit and Disbursement Agreement...................33
         5.1.12.         Security Agreements..................................34
         5.1.13.         Subordination Agreement..............................34
         5.1.14.         Opinions of Counsel..................................34
         5.1.15.         Purchase Documents...................................34
         5.1.16.         Project Documents....................................35
         5.1.17.         Projections..........................................35
         5.1.18.         Insurance Certificates...............................35
         5.1.19.         Independent Engineer's Report........................35
         5.1.20.         Financial Statements.................................35
         5.1.21.         Loan Purchase Agreement..............................35
         5.1.22.         Indemnification Agreement............................35
         5.1.23.         Due Diligence........................................35
         5.1.24.         Closing Fees, Expenses, etc..........................35
         5.2.            All Borrowings.......................................36
         5.2.1.          Compliance with Warranties, No Default, etc..........36
         5.2.2.          Borrowing Request....................................37
         5.2.3.          Satisfactory Legal Form..............................37

ARTICLE VI
                         REPRESENTATIONS AND WARRANTIES.......................37
         6.1.            Organization, etc....................................37
         6.2.            Due Authorization, Non-Contravention, etc............37
         6.3.            Government Approval, Regulation, etc.................38
         6.4.            Validity, etc........................................38
         6.5.            Financial Information................................39
         6.6.            No Material Adverse Change...........................39
         6.7.            Litigation, Labor Controversies, etc.................39
         6.8.            Subsidiaries.........................................39
         6.9.            Ownership of Properties..............................39
         6.10.           Taxes................................................40
         6.11.           Pension and Welfare Plans............................40
         6.12.           Environmental Warranties.............................40
         6.13.           Regulations G, U and X...............................41
         6.14.           Accuracy of Information..............................41
         6.15.           Financial Projections................................42
         6.16.           Collateral Security Documents........................42
         6.17.           Principal Place of Business, etc.....................42
         6.18.           Representations and Warranties Incorporated from
                         Purchase Agreement...................................43

ARTICLE VII
         COVENANTS............................................................43


                                      -ii-
<PAGE>
                          TABLE OF CONTENTS, continued

SECTION                                                                     PAGE


         7.1.            Affirmative Covenants................................43
         7.1.1.          Financial Information, Reports, Notices, etc.........43
         7.1.2.          Compliance with Laws, etc............................45
         7.1.3.          Maintenance of Properties............................45
         7.1.4.          Insurance............................................45
         7.1.5.          Books and Records....................................46
         7.1.6.          Environmental Covenant...............................46
         7.1.7.          Resist Regulatory Change.............................46
         7.1.8.          Take-Out Financing; Assignments......................47
         7.2.            Negative Covenants...................................47
         7.2.1.          Business Activities..................................47
         7.2.2.          Indebtedness.........................................47
         7.2.3.          Liens................................................48
         7.2.4.          Financial Condition..................................49
         7.2.5.          Investments..........................................50
         7.2.6.          Restricted Payments, etc.............................50
         7.2.7.          Rental Obligations...................................51
         7.2.8.          Take or Pay Contracts................................51
         7.2.9.          Consolidation, Merger, etc...........................51
         7.2.10.         Asset Dispositions, etc..............................52
         7.2.11.         Modification of Certain Agreements...................52
         7.2.12.         Transactions with Affiliates.........................53
         7.2.13.         Negative Pledges, Restrictive Agreements, etc........54
         7.2.14.         Change of Name or Office or Fiscal Year..............54
         7.2.15.         Pension and Welfare..................................55

ARTICLE VIII
                         EVENTS OF DEFAULT....................................55
         8.1.            Listing of Events of Default.........................55
         8.1.1.          Non-Payment of Obligations...........................55
         8.1.2.          Breach of Warranty...................................55
         8.1.3.          Non-Performance of Certain Covenants and
                         Obligations..........................................55
         8.1.4.          Non-Performance of Other Covenants and
                         Obligations..........................................55
         8.1.5.          Default on Other Indebtedness........................56
         8.1.6.          Judgments............................................56
         8.1.7.          Control of the Borrower..............................56
         8.1.8.          Bankruptcy, Insolvency, etc..........................56
         8.1.9.          Impairment of Security, etc..........................57
         8.1.10.         Public Utility Regulation............................57
         8.2.            Action if Bankruptcy.................................58
         8.3.            Action if Other Event of Default.....................58
                         Restrictions on Off-Sets.............................58




                                      -iii-
<PAGE>
                          TABLE OF CONTENTS, continued

SECTION                                                                     PAGE


ARTICLE IX
                         THE AGENT............................................58
         9.1.            Actions..............................................58
         9.2.            Funding Reliance, etc................................59
         9.3.            Exculpation..........................................59
         9.4.            Successor............................................60
         9.5.            Loans by Scotiabank..................................61
         9.6.            Credit Decisions.....................................61
         9.7.            Copies, etc..........................................61

ARTICLE X
                         MISCELLANEOUS PROVISIONS.............................61
         10.1.           Waivers, Amendments, etc.............................61
         10.2.           Notices..............................................62
         10.3.           Payment of Costs and Expenses........................62
         10.4.           Indemnification......................................63
         10.5.           Survival.............................................64
         10.6.           Severability.........................................65
         10.7.           Headings.............................................65
         10.8.           Execution in Counterparts, Effectiveness, etc........65
         10.9.           Governing Law; Entire Agreement......................65
         10.10.          Successors and Assigns...............................65
         10.11.          Sale and Transfer of Loans and Note; Participations
                         in Loans and Note....................................65
         10.11.1.        Assignments..........................................66
         10.11.2.        Participations.......................................67
         10.12.          Other Transactions...................................68
         10.13.          Forum Selection and Consent to Jurisdiction and
                         Agent for Service of Process.........................68
         10.14.          Waiver of Jury Trial.................................69
         10.15.          Confidentiality......................................69
         10.16.          Limitations on Recourse..............................70
||
SCHEDULE 1 - Disclosure Schedule
SCHEDULE 2 - Filings for Collateral Documents
SCHEDULE 3 - Clear Lake Project Documents
SCHEDULE 4 - Cogenron Project Documents
SCHEDULE 5 - Clear Lake Project Loan Documents
SCHEDULE 6 - Cogenron Project Loan Documents
SCHEDULE 7 - Financial Projections
SCHEDULE 8 - Equity Support Agreements

EXHIBIT A                - Form of Note
EXHIBIT B                - Form of Borrowing Request
EXHIBIT C                - Form of Continuation/Conversion Notice
EXHIBIT D                - Form of Deposit and Disbursement Agreement


                                      -iv-
<PAGE>
                          TABLE OF CONTENTS, continued

SECTION                                                                     PAGE

EXHIBIT E                - Form of Security Agreement
EXHIBIT F                - Form of Assignment and Security Agreement
EXHIBIT G                - Form of Pledge Agreement
EXHIBIT H                - Form of Subordination Agreement
EXHIBIT I                - Form of Lender Assignment Agreement
EXHIBIT J                - Form of Opinion of Counsel to the Borrower
EXHIBIT K                - Form of Loan Purchase Agreement
EXHIBIT L                - Form of Indemnity Agreement72



                                       -v-

                                  $200,000,000

                               CALPINE CORPORATION

                               8 3/4% Senior Notes


                               PURCHASE AGREEMENT


                                  July 1, 1997


CREDIT SUISSE FIRST BOSTON CORPORATION
   As Representative of the Several Purchasers,
           11 Madison Avenue,
              New York, N.Y. 10010

Dear Sirs:


         1.  Introductory.  Calpine  Corporation,  a Delaware  corporation  (the
"Company"),  proposes,  subject to the terms and conditions  stated  herein,  to
issue and sell to the several initial purchasers named in Schedule A hereto (the
"Purchasers")  U.S.$200,000,000  principal amount of its 8 3/4% Senior Notes Due
2007 (the "Offered Securities") to be issued under an indenture dated as of July
8, 1997 (the  "Indenture"),  between  the  Company and The Bank of New York (the
"Trustee"),  on a private placement basis pursuant to an exemption under Section
4(2) of the United States Securities Act of 1933 (the "Securities Act").

         Holders  (including  subsequent  transferees) of the Offered Securities
will have the registration rights set forth in the Registration Rights Agreement
of even date herewith (the "Registration  Rights Agreement"),  among the Company
and the Purchasers.  Pursuant to the  Registration  Rights Agreement the Company
has  agreed  to  file  with  the   Securities  and  Exchange   Commission   (the
"Commission")  (i) a registra tion statement (the "Exchange  Offer  Registration
Statement")  under the Securities Act registering the offering of senior secured
notes (the  "Exchange  Securities")  identical in all  material  respects to the
Offered Securities  (except that the Exchange  Securities will not contain terms
with respect to transfer restrictions) to be offered in exchange for the Offered
Securities (the "Exchange Offer") and (ii) under certain circumstances,  a shelf
registration statement pursuant to Rule 415 under the Securities Act (the "Shelf
Registration Statement").

         The Company hereby agrees with the Purchasers as follows:

         2.   Representations  and  Warranties  of  the  Company.   The  Company
represents and warrants to, and agrees with, the several Purchasers that:

                  (a) A  preliminary  offering  circular has been prepared and a
         final  offering  circular  relating to the Offered  Securities  will be
         prepared  by  the  Company.  Such  preliminary  offering  circular  and
         offering  circular,  as  supplemented as of the date of this Agreement,
         together with the  documents  listed in Schedule B hereto and any other
         document  approved  by the  Company  for  use in  connection  with  the
         contemplated  resale  of  the  Offered   Securities,   are  hereinafter
         collectively  referred to as the  "Offering  Document".  On the date of
         this Agreement,  

                                        1

<PAGE>

         the perliminary offering circular does not include and
         the final offering circular in the form used by the Purchasers to
         confirm sales and on the Closing Date will not include any
         untrue  statement of a material fact or omit to state any material fact
         required  to be  stated  therein  or  necessary  in  order  to make the
         statements  therein, in the light of the circumstances under which they
         were made,  not  misleading.  The preceding  sentence does not apply to
         statements  in or  omissions  from the  Offering  Document  based  upon
         written  information  furnished to the Company by any Purchaser through
         Credit Suisse First Boston  Corporation  ("CSFB")  specifically for use
         therein,  it being understood and agreed that the only such information
         is that  described as such in Section 7(b).  Except as disclosed in the
         Offering Document, on the date of this Agreement,  the Company's Annual
         Report on Form 10-K most  recently  filed with the  Commission  and all
         subsequent  reports  (collectively,  the "Exchange Act Reports")  which
         have been filed by the  Company  with the  Commission  or sent to stock
         holders pursuant to the Securities  Exchange Act of 1934 (the "Exchange
         Act") do not include any untrue statement of a material fact or omit to
         state any material fact  necessary to make the statements  therein,  in
         the  light  of the  circumstances  under  which  they  were  made,  not
         misleading.  Such documents,  when they were filed with the Commission,
         conformed in all material  respects to the requirements of the Exchange
         Act and the rules and  regulations  of the Commission  thereunder.  The
         preceding  sentence does not apply to  statements in or omissions  from
         the Offering Document based upon written  information  furnished to the
         Company by any Purchaser through CSFB specifically for use therein,  it
         being  understood  and agreed  that the only such  information  is that
         described as such in Section 7(b).

                  (b) The Company has been duly  incorporated and is an existing
         corporation  in good standing  under the laws of the State of Delaware,
         with power and authority  (corporate  and other) to own its  properties
         and conduct its business as described in the Offering Document; and the
         Company is duly  qualified to do business as a foreign  corporation  in
         good  standing in all other  jurisdictions  in which its  ownership  or
         lease  of  property  or the  conduct  of  its  business  requires  such
         qualification, except to the extent that the failure to be so qualified
         or be in good standing would not have a material  adverse effect on the
         Company and its Subsidiaries (as defined below), taken as a whole.

                  (c) Each  Subsidiary  of the  Company  (i)  other  than  those
         Subsidiaries specified in clause (ii) of this paragraph (2)(c) has been
         duly  incorporated,  is  validly  existing  as a  corpora  tion in good
         standing under the laws of the jurisdiction of its  incorporation,  and
         has  corporate  power and  authority to own its property and to conduct
         its business as described in the Offering  Document or (ii) that is not
         a  corporation  is a limited  partnership,  has been duly formed and is
         validly  existing as a limited  partnership  in good standing under the
         laws of the  jurisdiction  of its  formation,  and has full  power  and
         authority  to own its property and to conduct its business as described
         in the Offering  Document;  and, in either case,  is duly  qualified to
         transact business and is in good standing in each jurisdiction in which
         the  conduct of its  business or its  ownership  or leasing of property
         required such  qualification,  except to the extent that the failure to
         be so  qualified  or be in good  standing  would  not  have a  material
         adverse effect on the Company and its  Subsidiaries,  taken as a whole;
         and the Company is not a general  partner in any  partnership.  As used
         herein,  the term "Subsidiary" shall have the meaning ascribed to it in
         the Indenture.

                  (d) The Indenture has been duly authorized by the Company; the
         Offered  Securities have been duly authorized by the Company;  and when
         the Offered  Securities  are  delivered  and paid for  pursuant to this
         Agreement and the Indenture on the Closing Date (as defined below), the
         Indenture  will have been duly  executed and  delivered  (assuming  due
         authorization,  execution  and delivery by the  Trustee),  such Offered
         Securities  will have been duly  executed,  authenticated,  issued  and
         delivered (assuming authentication by the Trustee in accordance with
         the provisions of the  Indenture)  and will conform to the  description
         thereof  contained in 


                                       2
<PAGE>


         the Offering  Document and the Indenture and such
         Offered   Securities   will   constitute   valid  and  legally  binding
         obligations of the Company (and the Offered Securities will be entitled
         to the benefits in the Indenture), enforceable in accordance with their
         terms,  except as (i) the  enforceability  thereof  may be  limited  by
         bankruptcy,  insolvency  or similar laws  affecting  creditors'  rights
         generally  and (ii)  rights of  acceleration  and the  availability  of
         equitable  remedies may be limited by equitable  principles  of general
         applicability.

                  (e) Except as disclosed in the Offering Document, there are no
         contracts,  agreements  or  understandings  between the Company and any
         person that would give rise to a valid claim against the Company or any
         Purchaser  for a  brokerage  commission,  finder's  fee or  other  like
         payment with respect to this Offering.

                  (f)  The   Registration   Rights   Agreement   has  been  duly
         authorized,  executed and  delivered by the Company and  (assuming  due
         authorization,  execution and delivery by the Purchasers) constitutes a
         valid and binding agreement of the Company,  enforceable in accor dance
         with its terms except as (i) the enforceability  thereof may be limited
         by bankruptcy,  insolvency or similar laws affecting  creditors' rights
         generally  and (ii)  rights of  acceleration  and the  availability  of
         equitable remedies may be limited by equitable principles of general ap
         plicability.

                  (g) No  consent,  approval,  authorization,  or order  of,  or
         filing with, any  governmental  agency or body or any court is required
         for  the  consummation  of  the  transactions  contemplat  ed  by  this
         Agreement  in  connection  with the  issuance  and sale of the  Offered
         Securities  by the  Company,  except such as may be required by (i) the
         securities or Blue Sky laws of the various  states in  connection  with
         the offer and sale of the Offered Securities and (ii) the securities or
         Blue  Sky  laws  of  the  various  states  and  the  Securities  Act in
         connection with the offer of the Exchange Securities.

                  (h) The execution,  delivery and performance of the Indenture,
         this Agreement, the Registration Rights Agreement, and the issuance and
         sale of the  Offered  Securities  and  compliance  with the  terms  and
         provisions  thereof  will not result in a breach or violation of any of
         the terms  and  provisions  of, or  constitute  a  default  under,  any
         statute,  any rule,  regulation or order of any governmental  agency or
         body or any court,  domestic or foreign,  having  jurisdiction over the
         Company or any Subsidiary of the Company or any of their properties, or
         any agreement or instrument to which the Company or any such Subsidiary
         is a party or by which the Company or any such  Subsidiary  is bound or
         to which any of the properties of the Company or any such Subsidiary is
         subject,  or the  charter  or  by-laws  of  the  Company  or  any  such
         Subsidiary,  and the Company has full power and authority to authorize,
         issue  and  sell  the  Offered   Securities  as  contemplated  by  this
         Agreement.

                  (i)  This  Agreement  has  been  duly  authorized,  executed 
         and delivered by the Company.

                  (j) Except as disclosed in the Offering Document,  the Company
         and its  Subsidiaries  have  good  and  marketable  title  to all  real
         properties  and all other  properties and assets owned by them, in each
         case free from liens,  encumbrances  and defects that would  materially
         affect the value thereof or materially  interfere  with the use made or
         to be made  thereof by them;  and except as  disclosed  in the Offering
         Document,  the  Company  and its  Subsidiaries  hold any leased real or
         personal property under valid and enforceable leases with no exceptions
         that would materially interfere with the use made or to be made thereof
         by them.

                  (k)  The  Company  and  its   Subsidiaries   possess  adequate
         certificates, authorities or permits issued by appropriate governmental
         agencies or bodies  necessary  to conduct the  


                                       3
<PAGE>


         business  now  operated  by them and have not  received  any  notice of
         proceedings  relating to the  revocation  or  modification  of any such
         certificate,  authority or permit that, if determined  adversely to the
         Company  or any  of  its  Subsidiaries,  would  individually  or in the
         aggregate  have a  material  adverse  effect  on the  Company  and  its
         Subsidiaries taken as a whole.

                  (l) No labor  dispute with the employees of the Company or any
         Subsidiary exists or, to the knowledge of the Company, is imminent that
         might  have  a  material   adverse   effect  on  the  Company  and  its
         Subsidiaries taken as a whole.

                  (m) Except as disclosed in the Offering Document,  neither the
         Company nor any of its Subsidiaries is in violation of any statute, any
         rule, regulation,  decision or order of any governmental agency or body
         or any court,  domestic  or foreign,  relating to the use,  disposal or
         release of hazardous or toxic  substances or relating to the protection
         or  restoration  of the  environment  or human exposure to hazardous or
         toxic  substances  (collectively,   "environmen  tal  laws"),  owns  or
         operates any real  property  contaminated  with any  substance  that is
         subject to any environmental  laws, is liable for any off-site disposal
         or contamination  pursuant to any environmental  laws, or is subject to
         any  claim  relating  to  any  environmental   laws,  which  violation,
         contamination,   liability  or  claim  would  individually  or  in  the
         aggregate  have a  material  adverse  effect  on the  Company  and  its
         Subsidiaries  taken as a whole;  and the  Company  is not  aware of any
         pending investigation which might lead to such a claim.

                  (n) Except as disclosed in the Offering Document, there are no
         pending actions, suits or proceedings against or affecting the Company,
         any of its Subsidiaries or any of their respective  properties that, if
         determined  adversely to the Company or any of its Subsidiaries,  would
         individually or in the aggregate have a material  adverse effect on the
         condition  (financial  or other),  business,  properties  or results of
         operations  of the Company and its  Subsidiaries  taken as a whole,  or
         would  materially  and  adversely  affect the ability of the Company to
         perform its obligations under the Indenture or this Agreement, or which
         are  otherwise  material  in the  context  of the  sale of the  Offered
         Securities;  and no such actions,  suits or proceedings  are threatened
         or, to the Company's knowledge, contemplated.

                  (o) The financial statements included in the Offering Document
         present   fairly  the  financial   position  of  the  Company  and  its
         consolidated  Subsidiaries  as of the dates shown and their  results of
         operations  and cash  flows  for the  periods  shown,  and,  except  as
         otherwise disclosed in the Offering Document, such financial statements
         have  been  prepared  in  confor  mity  with  the  generally   accepted
         accounting  principles  in the United  States  applied on a  consistent
         basis and the  assumptions  used in preparing  the pro forma  financial
         statements included in the Offering Document provide a reasonable basis
         for presenting the  significant  effects  directly  attributable to the
         transactions  or  events  described  therein,  the  related  pro  forma
         adjustments give appropriate effect to those  assumptions,  and the pro
         forma  columns  therein   reflect  the  proper   application  of  those
         adjustments  to  the  corresponding   historical   financial  statement
         amounts.

                  (p)  The  statistical  and  market-related  data  (other  than
         market-related  data and  statistical  data  provided  by the  Company)
         included in the Offering  Document are based on or derived from sources
         which the  Company  believes  to be  reliable  and  accurate,  it being
         understood,  however,  that the Company has  conducted  no  independent
         investigation of the accuracy thereof.

                  (q) Except as disclosed in the  Offering  Document,  since the
         date  of  the  latest  audited  financial  statements  included  in the
         Offering  Document there has been no material  adverse change,  nor any
         development or event involving a prospective  material  adverse change,
         in the 

                                       4
<PAGE>

         condition  (financial  or other),  business,  properties  or results of
         operations of the Company and its Subsidiaries  taken as a whole,  and,
         except as disclosed in or contemplated by the Offering Document,  there
         has been no dividend or distribution of any kind declared, paid or made
         by the Company on any class of its capital stock.

                  (r) The Company is not an open-end  investment  company,  unit
         investment  trust  or  face-amount  certificate  company  that is or is
         required  to  be  registered  under  Section  8 of  the  United  States
         Investment  Company Act of 1940 (the "Investment  Company Act"), nor is
         it a closed-end  investment company required to be registered,  but not
         registered, thereunder; and the Company is not and, after giving effect
         to the offering and sale of the Offered  Securities and the application
         of the proceeds thereof as described in the Offering Document, will not
         be an "investment company" as defined in the Investment Company Act.

                  (s) No  securities  of the same class  (within  the meaning of
         Rule 144A(d)(3) under the Securities Act) as the Offered Securities are
         listed on any national  securities  exchange registered under Section 6
         of  the  Exchange  Act  or  quoted  in a  U.S.  automated  inter-dealer
         quotation system.

                  (t) The  offer  and  sale  of the  Offered  Securities  by the
         Company to the several  Purchasers in the manner  contemplated  by this
         Agreement  will be exempt from the registra  tion  requirements  of the
         Securities  Act  by  reason  of  Section  4(2)  thereof;  and it is not
         necessary to qualify the Indenture in respect of the Offered Securities
         under the United  States Trust  Indenture  Act of 1939, as amended (the
         "Trust Indenture Act").

                  (u) Neither the Company, nor any of its affiliates (as defined
         in Rule  501(b) of  Regulation  D under the  Securities  Act),  nor any
         person  acting on its or their  behalf (i) has,  within  the  six-month
         period prior to the date hereof,  offered or sold in the United  States
         or to any U.S.  person (as such terms are defined in Regulation S under
         the Securities Act) the Offered  Securities or any security of the same
         class or series as the Offered  Securities  or (ii) has offered or will
         offer or sell the Offered  Securities (A) in the United States by means
         of any form of general  solicitation or general  advertising within the
         meaning of Rule 502(c) under the  Securities Act or (B) with respect to
         any  securities  sold in reliance on Rule 903 of Regulation S, by means
         of any directed  selling  efforts  within the meaning of Rule 902(b) of
         Regulation  S. The  Company has not entered and will not enter into any
         contractual  arrange  ment  with  respect  to the  distribution  of the
         Offered Securities except for this Agreement.

                  (v) Neither the  Company  nor any of its  Subsidiaries  is (i)
         subject to regulation as a "holding company" or a "Subsidiary  company"
         of a holding company or a "public  utility  company" under Section 2(a)
         of the Public  Utility  Holding  Company  Act of 1935  ("PUHCA"),  (ii)
         subject to regulation  under the Federal Power Act, as amended ("FPA"),
         other than as contemplated by 18 C.F.R. Sec 292.601(c) or (iii) subject
         to any state law or  regulation  with respect to rates or the financial
         or  organizational  regulation  of  electric  utilities,  other than as
         contemplated by 18 C.F.R. Sec 292.602(c).


                  (w) Each of the power generation projects in which the Company
         or its Subsidiaries  has an interest (the "Projects")  which is subject
         to the requirements under the Public Utility Regulatory Policies Act of
         1978, as amended (16 U.S.C.  Sec 796, et seq.),  and the regulations of
         the  Federal  Energy   Regulatory   Commission   ("FERC")   promulgated
         thereunder,  as  amend  ed  from  time  to  time,  necessary  to  be  a
         "qualifying  cogeneration  facility"  and/or a "qualifying  small power
         production facility" meets such requirements.

                  (x) The  Company  is  subject  to  Section  13 or 15(d) of the
         Exchange Act.


                                       5
<PAGE>


         3. Purchase,  Sale and Delivery of Offered Securities.  On the basis of
the representations,  warranties and agreements herein contained, but subject to
the terms and  conditions  herein set forth,  the Company  agrees to sell to the
Purchasers,  and the Purchasers  agree,  severally and not jointly,  to purchase
from the  Company,  at a purchase  price of  99.6353%  of the  principal  amount
thereof  plus  accrued  interest  from  July 8,  1997 to the  Closing  Date  (as
hereinafter  defined) the respective  principal amount of Offered Securities set
forth opposite the names of the several Purchasers in Schedule A hereto.

         The Company will  deliver  against  payment of the  purchase  price the
Offered  Securities in the form of one or more  permanent  global  securities in
definitive  form  (the  "Global  Securities")  deposited  with  the  Trustee  as
custodian for The Depository Trust Company ("DTC") and registered in the name of
Cede & Co., as nominee for DTC.  Interests in any  permanent  Global  Securities
will  be held  only in  book-entry  form  through  DTC,  except  in the  limited
circumstances  described  in the  Offering  Document.  Payment  for the  Offered
Securities  shall be made by the  Purchasers  in  Federal  (same  day)  funds by
official check or checks or wire transfer to an account previously designated to
CSFB by the Company at a bank acceptable to CSFB at the office of Skadden, Arps,
Slate,  Meagher & Flom LLP at 10:00 A.M. (New York time), on July 8, 1997, or at
such other time not later than seven full business  days  thereafter as CSFB and
the Company determine, such time being herein referred to as the "Closing Date",
against  delivery to the Trustee as custodian  for DTC of the Global  Securities
representing all of the Offered  Securities.  The Global Securities will be made
available for inspection at the above office of Skadden,  Arps, Slate, Meagher &
Flom LLP at least 24 hours prior to the Closing Date.

         4.  Representations  by  Purchasers;  Resale  by  Purchasers.  

                  (a) Each Purchaser  severally  represents and warrants to the
Company that it is an "accredited  investor"  within the meaning of Regulation D
under the Securities Act.

                  (b) Each  Purchaser  severally  acknowledges  that the Offered
         Securities  have not been  registered  under the Securities Act and may
         not be  offered  or sold  within  the  United  States or to, or for the
         account  or  benefit  of,  U.S.   persons  except  in  accordance  with
         Regulation  S  or  pursuant  to  an  exemption  from  the  registration
         requirements of the Securities Act. Each Purchaser severally represents
         and agrees that it has offered and sold the Offered Securities and will
         offer and sell the Offered Securities (i) as part of their distribution
         at any time and (ii) otherwise  until the later of the  commencement of
         the offering and the Closing Date,  only in  accordance  with Rule 144A
         ("Rule  144A") or Rule 903  under the  Securities  Act.  Accord  ingly,
         neither such  Purchaser nor its  affiliates,  nor any persons acting on
         its or their  behalf,  have  engaged  or will  engage  in any  directed
         selling  efforts  with  respect  to the  Offered  Securities,  and such
         Purchaser, its affiliates and all persons acting on its or their behalf
         have   complied  and  will  comply  with  the   offering   restrictions
         requirement  of Regulation S. Terms used in this paragraph (b) have the
         meanings given to them by Regulation S.

                  (c) Each  Purchaser  severally  agrees that it and each of its
         affiliates  has not  entered  and will not enter  into any  contractual
         arrangement with respect to the distribution of the Offered  Securities
         except  for  any  such   arrangements  with  the  other  Purchasers  or
         affiliates of the other Purchasers or with the prior written consent of
         the Company.

                  (d) Each  Purchaser  severally  agrees that it and each of its
         affiliates  will not offer or sell the Offered  Securities  by means of
         any form of general  solicitation  or general  advertising,  within the
         meaning of Rule 502(c) under the  Securities  Act,  including,  but not
         limited   to  (i)  any   advertisement,   article,   notice   or  other
         communication published in any newspaper,  magazine or similar media or
         broadcast  over  television  or radio,  or (ii) any  seminar or meeting
         whose  attendees  have been  invited  by any  general  solicitation  or
         general  advertising.  Each Purchaser 

                                       6
<PAGE>

         severally agrees, with respect to resales made in reliance on Rule 144A
         of  any  of  the  Offered  Securities,   to  deliver  either  with  the
         confirmation  of such resale or otherwise  prior to  settlement of such
         resale  a  notice  to the  effect  that  the  resale  of  such  Offered
         Securities  has  been  made in  reliance  upon the  exemption  from the
         registration requirements of the Securities Act provided by Rule 144A.

         5.   Certain Agreements of the Company.  The Company agrees with the 
         several Purchasers that:

                  (a) The  Company  will  arrange for the  qualification  of the
         Offered  Securities for sale and the determination of their eligibility
         for  investment  under the laws of such states in the United  States as
         CSFB designates and will continue such qualifications in effect so long
         as required for the resale of the Offered  Securities by the Purchasers
         provided  that the Company will not be required to qualify as a foreign
         corporation  or to file a general  consent to service of process in any
         such state.

                  (b) During the period of two years hereafter, the Company will
         furnish to CSFB and, upon request, to each of the other Purchasers,  as
         soon as  practicable  after the end of each fiscal  year, a copy of its
         annual  report to  shareholders  for such year;  and the  Company  will
         furnish to CSFB and, upon request,  to each of the other Purchasers (i)
         as soon as available,  a copy of each report and any  definitive  proxy
         statement of the Company filed with the  Commission  under the Exchange
         Act or mailed to  shareholders  and (ii) from time to time,  such other
         information concerning the Company as CSFB may reasonably request.

                  (c) During the period of two years after the Closing Date, the
         Company  will,  upon  request,  furnish  to  CSFB,  each  of the  other
         Purchasers  and  any  holder  of  Offered  Securities  a  copy  of  the
         restrictions on transfer applicable to the Offered Securities.

                  (d) During the period of two years after the Closing Date, the
         Company will not, and will not permit any of its affiliates (as defined
         in Rule 144 under the  Securities  Act) to,  resell any of the  Offered
         Securities that have been reacquired by any of them.

                  (e) During the period of two years after the Closing Date, the
         Company will not be or become,  an open-end  investment  company,  unit
         investment  trust  or  face-amount  certificate  company  that is or is
         required to be  registered  under Section 8 of the  Investment  Company
         Act,  and is not, and will not be or become,  a  closed-end  investment
         company  required  to be  registered,  but not  registered,  under  the
         Investment Company Act.

                  (f) The  Company  will  pay  all  expenses  incidental  to the
         performance of its obliga tions under this Agreement, the Indenture and
         the Registration Rights Agreement,  including (i) the fees and expenses
         of the  Trustee and its  professional  advisers;  (ii) all  expenses in
         connection  with the execution,  issue,  authentication,  packaging and
         initial  delivery  of  the  Offered  Securities,  the  preparation  and
         printing of this Agreement, the Offered Securities,  the Indenture, the
         Registration Rights Agreement, the Offering Document and amendments and
         supplements  thereto,  and any other document relating to the issuance,
         offer, sale and delivery of the Offered  Securities;  (iii) the cost of
         qualifying the Offered Securities for trading in the
         Private  Offerings,  Resale  and  Trading  through  Automated  Linkages
         (PORTAL) market and any expenses  incidental  thereto and (iv) the cost
         of any advertising approved by the Company in connection with the issue
         of the Offered  Securities.  The Company will  reimburse the Purchasers
         for any expenses (including fees and disbursements of counsel) incurred
         by them in connection with  qualification of the Offered Securities for
         sale under the laws of such  jurisdictions  as CSFB  designates and the
         printing  of  memoranda  relating  thereto,  for any  fees  charged  by
         investment  rating agencies for the rating of the  Securities,  for all
         travel  expenses  


                                       7
<PAGE>

         of the  Purchasers  and the  Company's  officers and  employees and any
         other  expenses of the  Purchasers  and the Company in connection  with
         attending  or hosting  meetings  with prospec  tive  purchasers  of the
         Offered  Securities  and for  expenses  incurred  in  distributing  the
         Offering Document (including any amendments and supplements thereto) to
         the Purchasers.

                  (g) In  connection  with the  offering,  until CSFB shall have
         notified the Company and the other  Purchasers of the completion of the
         resale of the  Offered  Securities,  neither the Company nor any of its
         affiliates has or will, either alone or with one or more other persons,
         bid  for  or  purchase  for  any  account  in  which  it or  any of its
         affiliates has a beneficial  interest any Offered Securities or attempt
         to induce any person to purchase any Offered Securities; and neither it
         nor any of its  affiliates  will make bids or purchases for the purpose
         of creating actual,  or apparent,  active trading in, or of raising the
         price of, the Offered Securities.

                  (h)  Except  as   contemplated   by  the   Indenture  and  the
         Registration  Rights Agreement,  for a period of 30 days after the date
         of the initial  offering of the Offered  Securities by the  Purchasers,
         the  Company  will  not  offer,  sell,  contract  to sell,  pledge,  or
         otherwise  dispose  of,  directly  or  indirectly,  any  United  States
         dollar-denominated debt securities issued or guaran teed by the Company
         and having a maturity of more than one year from the date of issue. The
         Company will not at any time offer,  sell,  contract to sell, pledge or
         otherwise  dispose of,  directly or indirectly,  any  securities  under
         circumstances  where such offer, sale, pledge,  contract or disposition
         would cause the  exemption  afforded by Section 4(2) of the  Securities
         Act to cease to be applicable to the offer and sale of the Securities.

         6. Conditions of the Obligations of the Purchasers.  The obligations of
the several  Purchas ers to purchase and pay for the Offered  Securities will be
subject to the accuracy of the  representa  tions and  warranties on the part of
the Company herein, to the accuracy of the statements of officers of the Company
made pursuant to the provisions hereof, to the performance by the Company of its
obligations hereunder and to the following additional conditions precedent:

              (a) The Purchasers shall have received:

                  (i) letters,  dated the date of this Agreement and the Closing
              Date, of Arthur  Andersen  substantially  in the form of Exhibit A
              hereto  to the  Purchasers  concerning  certain  of the  financial
              information  with  respect  to the  Company  as set  forth  in the
              Offering Document;

                  (ii)letters,  dated the date of this Agreement and the Closing
              Date,  of Moss  Adams LLP  substantially  in the form of Exhibit B
              hereto  to the  Purchasers  concerning  certain  of the  financial
              information  with respect to the Company set forth in the Offering
              Document; and

                  (iii)  letters,  dated  the  date  of this  Agreement  and the
              Closing  Date, of Ernst & Young LLP  substantially  in the form of
              Exhibit  C hereto  to the  Purchasers  concerning  certain  of the
              financial  information with respect to the company as set forth in
              the Offering Docu ment.

              (b) Subsequent to the execution and delivery of this Agreement and
         prior to the  Closing  Date,  there  shall  not have  occurred  (i) any
         change, or any development or event involving a prospective  change, in
         the condition (financial or other), business,  properties or results of
         operations of the Company or its Subsidiaries which, in the judgment of
         a majority in interest of the  Purchasers,  including CSFB, is material
         and adverse and makes it  impractical  or  inadvisable  to proceed with
         completion  of the  offering or the sale of and payment for the Offered
         Securities;  (ii) any  downgrading in the rating of any debt securities
         of  the  Company  by  


                                       8
<PAGE>

         any "nationally recognized statistical rating organization" (as defined
         for purposes of Rule 436(g) under the  Securities  Act),  or any public
         announcement  that any such  organization  has  under  surveillance  or
         review its rating of any debt  securities of the Company (other than an
         announcement with positive implications of a possible upgrading, and no
         implication  of a  possible  downgrading,  of such  rating);  (iii) any
         suspension or limitation of trading in securities  generally on the New
         York Stock  Exchange  or any  setting of minimum  prices for trading on
         such  exchange,  or any  suspension of trading of any securities of the
         Company on any  exchange or in the  over-the-counter  market;  (iv) any
         banking  moratorium  declared by U.S. Federal or, New York authorities;
         or (v) any outbreak or  escalation  of major  hostilities  in which the
         United States is involved,  any  declaration  of war by Congress or any
         other substantial  national or international  calamity or emergency if,
         in the judgment of a majority in interest of the  Purchasers  including
         CSFB,  the  effect  of  any  such  outbreak,  escalation,  declaration,
         calamity or emergency  makes it  impractical  or inadvisable to proceed
         with  completion of the offering or sale of and payment for the Offered
         Securities.

              (c) You shall have received on the Closing Date a  certificate  or
         certificates, dated the Closing Date and signed by an executive officer
         of the Company,  to the effect set forth in clause (b)(ii) above and to
         the effect  that the  representations  and  warranties  of the  Company
         contained in this Agreement are true and correct as of the Closing Date
         and that the  Company  has  complied  with  all of the  agreements  and
         satisfied  all of  the  conditions  on  its  part  to be  performed  or
         satisfied on or before the Closing Date.

              The  officers   signing  and   delivering   such   certificate  or
         certificates   may  rely  upon  the  best  of  their  knowledge  as  to
         proceedings threatened.

              (d) The  Purchasers  shall have  received  an  opinion,  dated the
         Closing  Date,  of  Brobeck,  Phleger & Harrison  LLP,  counsel for the
         Company, that:

                  (i)  the  Company  has  been  duly  incorporated,  is  validly
              existing as a corporation  in good standing  under the laws of the
              State of Delaware,  has the corporate  power and au thority to own
              its  property  and to conduct  its  business as  described  in the
              Offering Document,  and is duly qualified to transact business and
              is in good  standing in each juris diction in which the conduct of
              its  business  or its  ownership  or leasing of property re quires
              such qualification, except to the extent that the failure to be so
              qualified or be in good standing would not have a material adverse
              effect on the Company and its Subsid iaries, taken as a whole;

                  (ii)this Agreement has been duly authorized, executed and 
              delivered by the Company;

                  (iii) the  Indenture  has been duly  authorized,  executed and
              delivered  by the Company and is a valid and binding  agreement of
              the Company,  enforceable  in accordance  with its terms except as
              (a) the  enforceability  thereof  may be  limited  by  bankruptcy,
              insolvency or similar laws affecting  creditors'  rights generally
              and (b) rights of acceleration  and the  availability of equitable
              remedies may be limited by equitable principles of general applica
              bility;  and  the  Indenture  is in  such  form  that  it may be
              qualified  under the Trust Inden ture Act, in compliance  with the
              terms of the  provisions  of the  Registration  Rights  Agree ment
              without material modification;

                  (iv) the Offered  Securities  have been duly authorized by the
              Company  and,  when the  Offered  Securities  are  executed by the
              Company and  authenticated  by the Trustee in accordance  with the
              provisions  of the  Indenture and delivered to and paid for by the
              Purchasers in  accordance  with the terms of this  Agreement,  the
              Offered  Securities  will  be  entitled  to  


                                       9
<PAGE>

              the  benefits  of the  Indenture  and  will be valid  and  binding
              obligations of the Company,  enforceable in accordance  with their
              terms except as (a) the  enforceability  thereof may be limited by
              bankruptcy, insolvency or similar laws affecting creditors' rights
              generally and (b) rights of acceleration  and the  availability of
              equitable  remedies  may be limited  by  equitable  principles  of
              general applicability;

                  (v)  the   Registration   Rights   Agreement   has  been  duly
              authorized,  executed and  delivered by the Company and  (assuming
              due  authorization,  execution  and  delivery  by the  Purchasers)
              constitutes  a  valid  and  binding   agreement  of  the  Company,
              enforceable  in  accordance  with  its  terms  except  as (i)  the
              enforceability  thereof may be limited by bank ruptcy,  insolvency
              or similar laws  affecting  creditors'  rights  generally and (ii)
              rights of acceleration and the availability of equitable  remedies
              may be limited by equitable prin ciples of general applicability;

                  (vi) the  execution  and  delivery  by the Company of, and the
              performance  by  the  Company  of  its  obligations   under,  this
              Agreement,   the  Offered   Securities,   the  Indenture  and  the
              Registration Rights Agreement will not contravene any provision of
              applicable  law  or  the  certificate  of  incorporation,  bylaws,
              partnership  agreement  or other  organizational  documents of the
              Company or any  Subsidiary  of the Company  or, to such  counsel's
              knowledge,  any  agreement  or other  instrument  binding upon the
              Company or any Subsid iary of the Company  that is material to the
              Company  or  its  Subsidiaries  taken  as a  whole,  or,  to  such
              counsel's  knowledge,   any  judgment,  order  or  decree  of  any
              governmental  body,  agency or court having  jurisdiction over the
              Company  or  any  Subsidiary  of  the  Company,  and  no  consent,
              approval,  authorization  or  order of or  qualification  with any
              governmental body or agency is required for the performance by the
              Company of its  obligations  under  this  Agreement,  the  Offered
              Securities,  the Indenture and the Registra tion Rights Agreement,
              except such as may be required by (i) the  securities  or Blue Sky
              laws of the various  states in connection  with the offer and sale
              of the Offered Securities and (ii) the securities or Blue Sky laws
              of the various states and the  Securities  Act in connection  with
              the offer of the Exchange Securities;

                  (vii)  the  statements  in the  Offering  Document  under  the
              captions  "Description  of  Notes,"  "Plan  of  Distribution"  and
              "Transfer  Restrictions,"  insofar as such  statements  constitute
              summaries of the legal matters, documents and proceedings referred
              to therein, fairly present the information called for with respect
              to such  legal  matters,  documents  and  proceedings  and  fairly
              summarize the matters referred to therein;

                  (viii)  after due  inquiry,  such counsel does not know of any
              legal or governmental  proceedings  pending or threatened to which
              the Company or any of its  Subsidiaries is a party or to which any
              of the  properties  of the Company or any of its  Subsidiaries  is
              subject other than proceedings  fairly  summarized in all material
              respects  in the  Offering  Document  and  proceedings  which such
              counsel  believes are not likely to have a material adverse effect
              on the Company and its  Subsidiaries  taken as a whole,  or on the
              power or
              ability  of the  Company  to perform  its  obligations  under this
              Agreement,   the  Indenture,   the  Offered   Securities  and  the
              Registration  Rights  Agreement or to consummate the transac tions
              contemplated by the Offering Document;

                  (ix) based upon the representations, warranties and agreements
              of the Company in paragraphs  2(s) and 2(u) of this  Agreement and
              of the  Purchasers  in  paragraph 4 of this  Agreement  and on the
              representations  and agreements in the Offering Document under the
              caption "Transfer Restrictions," it is not necessary in connection


                                       10
<PAGE>
              with the offer, sale and delivery of the Offered Securities to the
              Purchasers  under this Agreement or in connection with the initial
              resale of such Offered  Securities by the Purchasers in accordance
              with  paragraph  4 of  this  Agreement  to  register  the  Offered
              Securities  under the  Securities  Act or to qualify the Indenture
              under the Trust Indenture Act, it being understood that no opinion
              is  expressed  as  to  any   subsequent   resale  of  any  Offered
              Securities; and

                  (x) the  Company is not an  "investment  company" or an entity
              "controlled"  by an "in  vestment  company,"  as  such  terms  are
              defined in the Investment Company Act of 1940, as amended.

         Such counsel shall also include a statement to the effect that no facts
have come to such  counsel's  attention  that would lead such counsel to believe
that  (except  for  financial  statements,  sched ules and other  financial  and
statistical  information  as to which such counsel need not express any be lief)
the  Offering  Document  when issued did not, and as of the date such opinion is
delivered does not,  contain any untrue  statement of a material fact or omit to
state a material fact necessary in order to make the statements  therein, in the
light of the circumstances under which they were made, not misleading.

              (e) You shall  have  received  on the  Closing  Date an opinion of
         Joseph E. Ronan,  Jr.,  General  Counsel of the Company,  to the effect
         that:

                  (i) each  Subsidiary  of the  Company  (x)  other  than  those
              Subsidiaries  specified in clause (y) of this paragraph  (6)(e)(i)
              has been duly  incorporated,  is validly existing as a corporation
              in  good  standing  under  the  laws  of the  jurisdiction  of its
              incorporation,  and has  corporate  power and authority to own its
              property  and to conduct its business as described in the Offering
              Document  or (y) that is not a  corporation  is a limited  partner
              ship,  has been duly  formed and is validly  existing as a limited
              partnership in good standing under the laws of the jurisdiction of
              its  formation,  and  has  full  power  and  authority  to own its
              property  and to conduct its business as described in the Offering
              Document  and,  in either  case,  is duly  qualified  to  transact
              business  and is in good stand ing in each  jurisdiction  in which
              the  conduct  of its  business  or its  ownership  or  leasing  of
              property  requires such  qualification,  except to the extent that
              the failure to be so  qualified or be in good  standing  would not
              have  a  material   adverse   effect  on  the   Company   and  its
              Subsidiaries,  taken as a whole;  and the Company is not a general
              partner in any partner ship;

                  (ii)the Company and each of its  Subsidiaries has obtained all
              necessary consents,  authorizations,  approvals, orders, licenses,
              certificates   and   permits  of  and  from,   and  has  made  all
              declarations and filings with, all foreign,  federal, state, local
              and  other  gov   ernmental   authorities,   all   self-regulatory
              organizations and all courts and other tribunals, required to own,
              lease,  license,  operate and use its properties and assets and to
              conduct  its  business  in the manner  described  in the  Offering
              Document, except to the extent that the failure to obtain, declare
              or file would not have a material  adverse  effect on the  Company
              and its Subsidiaries, taken as a whole;

                  (iii) the  contracts  and  agreements  of the  Company and its
              Subsidiaries  and  affiliates  described in the Offering  Document
              under  "Business --  Description  of  Facilities  -- Power Plants"
              conform  in all  material  respects  to the  descriptions  thereof
              contained  in the Offering  Document,  and the  statements  in the
              Offering Document under the captions  "Management,"  "Business ---
              Legal  Proceedings"  and "Business -- Government  Regula tions" in
              each case insofar as such statements  constitute  summaries of the
              legal  matters,  documents  and  proceedings  referred to therein,
              fairly  present the  information  called for with  respect to such
              legal matters,  documents and proceedings and fairly summarize the
              matters referred to therein;


                                       11
<PAGE>

                  (iv) such  counsel is of the opinion that the Company and each
              Subsidiary  of the Company (i) is in  compliance  with any and all
              applicable  environmental  laws,  (ii) has  received  all permits,
              licenses  or  other  approvals  required  of it  under  applicable
              environ  mental  laws to  conduct  its  business  and  (iii) is in
              compliance  with all  terms  and  conditions  of any such  permit,
              license or approval,  except where such noncompliance with environ
              mental  laws,  failure to receive  required  permits,  licenses or
              other approvals or failure to comply with the terms and conditions
              of such permits, licenses or approvals would not, singly or in the
              aggregate, have a material adverse effect on the Company; and

                  (v) neither the  Company  nor any of its  Subsidiaries  is (i)
              subject to  regulation  as a "holding  company"  or a  "Subsidiary
              company" of a holding company or an "affiliate" of a Subsidiary or
              holding company or a "public  utility  company" under Section 2(a)
              of PUHCA,  (ii) subject to regulation under the FPA, other than as
              contemplated  by 18 C.F.R.  Sec 292.601(c) or (iii) subject to any
              state law or regulation with respect to the rates or the financial
              or organizational regulation of electric utilities,  other than as
              contemplated by 18 C.F.R. Sec 292.602(c).

              (f) You shall  have  received  on the  Closing  Date an opinion of
         Skadden,  Arps,  Slate,  Meagher & Flom LLP,  special  counsel  for the
         Purchasers, dated the Closing Date, covering the matters referred to in
         subparagraphs  (ii),  (iii),  (iv),  (v),  (vii)  (but  only  as to the
         statements  in  the   "Description  of  the  Senior  Notes,"  "Plan  of
         Distribution" and "Transfer  Restrictions")  and (ix), and subparagraph
         (x) of paragraph (d) above.

         With respect to the final subparagraph of paragraph (d) above, Brobeck,
Phleger & Harrison LLP and Skadden,  Arps,  Slate,  Meagher & Flom LLP may state
that their belief is based upon their  participation  in the  preparation of the
Offering  Document  and any  amendments  or  supplements  thereto and review and
discussion  of the  contents  thereof,  but are  without  independent  check  or
verification except as specified.  With respect to matters of fact, such counsel
may  rely  on  certificates  of  officers  of the  Company  and of  governmental
officials,  in which case  their  opinion is to state that they are so doing and
that the  Purchasers  are justified in relying on such opinions or  certificates
and copies of said opinions or certificates are to be attached to the opinion.

         The opinion of Brobeck,  Phleger & Harrison LLP  described in paragraph
(d) above  shall be  rendered  to you at the request of the Company and shall so
state therein.

         The Company will furnish the Purchasers and their special  counsel with
such conformed copies of such opinions,  certificates,  letters and documents as
the Purchasers and their special  counsel  reasonably  request.  CSFB may in its
sole discretion waive on behalf of the Purchasers compliance with any conditions
to the obligations of the Purchasers hereunder.

         7.   Indemnification and Contribution.   

         (a) The Company will indemnify and hold harmless each Purchaser against
any losses,  claims,  damages or  liabilities,  joint or several,  to which such
Purchaser may become  subject,  under the  Securities Act or the Exchange Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect  thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Offering Document, or any
amendment or supplement thereto, or any related preliminary offering circular or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated  therein or necessary in order to make the
statements  therein,  in light of the circumstances  under which they were made,
not  misleading,  and  will  reimburse  each  Purchaser  for any  legal or other
expenses  reasonably incurred by such Purchaser in connection with investigating
or defending any such loss, claim, damage,  liability or action as such expenses
are incurred; provided, however, that the Company will not be liable in any such
case to the extent that any such loss, claim,  damage or liability 

12
<PAGE>

arises out of or is based upon an untrue  statement or alleged untrue  statement
in or omission or alleged  omission from any of such  documents in reliance upon
and in  conformity  with  written  information  furnished  to the Company by any
Purchaser  through CSFB  specifically  for use therein,  it being understood and
agreed that the only such information  consists of the information  described as
such in paragraph (b) below. The indemnity  agreement  contained in this Section
7(a) with  respect to any  untrue  statements  or  omission  in any  preliminary
offering  circular shall not inure to the benefit of any Purchaser if the person
asserting such losses,  liabilities,  claims, damages, or expenses purchased the
Offered  Securities  which is the subject  thereof if at or prior to the written
confirmation of the initial resale of the Offered Securities a copy of the final
offering  circular (or the final offering  circular as amended or  supplemented)
was not sent or delivered to such person and the final offering circular (or the
final offering circular as amended or supplemented)  would have cured the defect
giving rise to such losses, claims, damages or liabilities.

              (b) Each Purchaser  will  severally and not jointly  indemnify and
hold harmless the Company, its directors,  its officers and each person, if any,
who  controls  the  Company  within  the  meaning  of either  Section  15 of the
Securities  Act or Section 20 of the Exchange Act,  against any losses,  claims,
damages  or  liabilities  to which the  Company  may become  subject,  under the
Securities Act or the Exchange Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue  statement or alleged  untrue  statement  of any  material  fact
contained in the Offering Document,  or any amendment or supplement  thereto, or
any related preliminary offering circular, or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to be
stated  therein or necessary  in order to make the  statements  therein,  in the
light of the circumstances  under which they were made, not misleading,  in each
case to the  extent,  but only to the  extent,  that such  untrue  statement  or
alleged  untrue  statement or omission or alleged  omission was made in reliance
upon and in conformity with written information furnished to the Company by such
Purchaser  through CSFB  specifically  for use therein,  and will  reimburse any
legal or other expenses  reasonably  incurred by the Company in connection  with
investigating or defending any such loss, claim, damage,  liability or action as
such expenses are incurred,  it being  understood  and agreed that the only such
information  furnished by any Purchaser consists of the following information in
the  Offering  Document  furnished  on  behalf of each  Purchaser:  (i) the last
paragraph at the bottom of the cover page  concerning  the terms of the offering
by the Purchasers,  (ii) the legend on page 3 concerning the  stabilization  and
overallotment  by the  Purchasers,  (iii) the third  sentence  contained  in the
second paragraph under the caption "Plan of Distribution" concerning the role of
the Purchasers in the offering,  (iv) the second sentence of the third paragraph
under  the  caption  "Plan of  Distribution"  concerning  sales  of the  Offered
Securities,  (v) the fourth  paragraph under the caption "Plan of  Distribution"
concerning  sales of the Offered  Securities  to persons in the United  Kingdom,
(vi) the second  sentence  of the sixth  paragraph  under the  caption  "Plan of
Distribution" concerning the intention of the Purchasers to make a market in the
Offered Securities,  (vii) the first sentence of the seventh paragraph under the
caption "Plan of Distribution" concerning transactions engaged in by the Company
and the  Purchasers  and their  affiliates,  (viii)  the third  sentence  of the
seventh  paragraph  under the  caption  "Plan of  Distribution"  concerning  the
affiliation of the Bank of Novia Scotia with one of the Purchasers, and (ix) the
first sentence of the eighth  paragraph under the caption "Plan of Distribution"
concerning overallotments and stabilizing.


              (c)  Promptly  after  receipt by an  indemnified  party under this
paragraph of notice of the commencement of any action,  such  indemnified  party
will, if a claim in respect thereof is to be made against the indemnifying party
under  paragraph  (a)  or  (b)  above,  notify  the  indemnifying  party  of the
commencement  thereof; but the omission so to notify the indemnifying party will
not relieve it from any  liability  which it may have to any  indemnified  party
otherwise  than under  paragraph  (a) or (b) above.  In case any such  action is
brought against any indemnified party and it notifies the indemnify ing party of
the commencement thereof, the indemnifying party will be entitled to participate
therein 


13
<PAGE>

and, to the extent that it may wish,  jointly with any other  indemnifying party
similarly notified,  to assume the defense thereof, with counsel satisfactory to
such  indemnified  party  (who  shall  not,  except  with  the  consent  of  the
indemnified party, be counsel to the indemnifying  party), and after notice from
the indemnifying  party to such  indemnified  party of its election so to assume
the  defense  thereof,  the  indemnifying  party  will  not be  liable  to  such
indemnified  party  under  this  paragraph  for  any  legal  or  other  expenses
subsequently  incurred by such indemnified  party in connection with the defense
thereof other than reasonable  costs of  investigation.  No  indemnifying  party
shall,  without the prior written consent of the indemnified  party,  effect any
settlement  of any  pending  or  threatened  action  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
uncondition  al release of such  indemnified  party  from all  liability  on any
claims that are the subject matter of such action.

              (d) If the  indemnification  provided  for in  this  paragraph  is
unavailable  or  insufficient  to  hold  harmless  an  indemnified  party  under
paragraph (a) or (b) above, then each indemnifying party shall contribute to the
amount  paid or payable  by such  indemnified  party as a result of the  losses,
claims,  damages or liabilities referred to in paragraph (a) or (b) above (i) in
such proportion as is appropriate to reflect the relative  benefits  received by
the Company on the one hand and the Purchasers on the other from the offering of
the Offered Securities or (ii) if the allocation provided by clause (i) above is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the  relative  benefits  referred  to in clause  (i) above but also the
relative fault of the Company on the one hand and the Purchasers on the other in
connection  with the  statements  or  omissions  which  resulted in such losses,
claims,  damages or liabilities as well as any other relevant equitable consider
ations.  The relative  benefits  received by the Company on the one hand and the
Purchasers  on the other  shall be deemed  to be in the same  proportion  as the
total net proceeds from the offering (before deducting expenses) received by the
Company bear to the total discounts and  commissions  received by the Purchasers
from the Company under this Agreement. The relative fault 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  Company  or the  Purchasers  and the
parties'  relative intent,  knowledge,  access to information and opportunity to
correct or prevent  such untrue  statement  or  omission.  The amount paid by an
indemnified  party as a result of the  losses,  claims,  damages or  liabilities
referred  to in the  first  sentence  of this  paragraph  (d) shall be deemed to
include any legal or other  expenses  reasonably  incurred  by such  indemnified
party in connection with investigating or defending any action or claim which is
the  subject of this  paragraph  (d).  Notwithstanding  the  provisions  of this
paragraph (d) no Purchaser  shall be required to contribute any amount in excess
of the amount by which the total price at which the Offered Securities purchased
by it were resold  exceeds the amount of any damages  which such  Purchaser  has
otherwise  been  required  to pay by reason of such  untrue  or  alleged  untrue
statement or omission or alleged omission.  The Purchasers'  obligations in this
paragraph  (d) to  contribute  are  several in  proportion  to their  respective
purchase obligations and not joint.

              (e) The  obligations of the Company under this paragraph  shall be
in addition to any  liability  which the  Company may  otherwise  have and shall
extend,  upon the same  terms and  condi  tions,  to each  person,  if any,  who
controls any Purchaser  within the meaning of the Securities Act or the Exchange
Act; and the  obligations  of the Purchasers  under this  paragraph  shall be in
addition to any liability which the respective Purchasers may otherwise have and
shall extend,  upon the same terms and conditions,  to each person,  if any, who
controls the Company  within the meaning of the  Securities  Act or the Exchange
Act.

         8. Default of  Purchasers.  If any Purchaser or  Purchasers  default in
their  obligations to purchase  Offered  Securities  hereunder and the aggregate
principal  amount of the Offered  Securities that such  defaulting  Purchaser or
Purchasers  agreed  but  failed to  purchase  does not  exceed  10% of the total
principal  amount  of  the  Offered  Securities,   CSFB  may  make  arrangements
satisfactory to the Company 

                                       14
<PAGE>


for the purchase of such Offered  Securities by other persons,  including any of
the Purchas ers, but if no such  arrangements  are made by the Closing Date, the
non-defaulting  Purchasers shall be obligated severally,  in proportion to their
respective commitments  hereunder,  to purchase the Offered Securities that such
defaulting Purchasers agreed but failed to purchase on such Closing Date. If any
Purchaser or  Purchasers so default and the  aggregate  principal  amount of the
Offered  Securities with respect to which such default or defaults occur exceeds
10% of the total  principal  amount of the Offered  Securities and  arrangements
satisfactory to CSFB and the Company for the purchase of such Offered Securities
by other persons are not made within 36 hours after such default, this Agreement
will terminate without liability on the part of any non-defaulting  Purchaser or
the Company,  except as provided in paragraph 9. As used in this Agreement,  the
term  "Purchaser"  includes any person  substituted  for a Purchaser  under this
Section.  Nothing herein will relieve a defaulting  Purchaser from liability for
its default.

         9. Survival of Certain Representations and Obligations.  The respective
indemnities,  agree ments,  representations,  warranties and other statements of
the Company or its officers and of the several  Purchasers  set forth in or made
pursuant to this Agreement  will remain in full force and effect,  regardless of
any investigation,  or statement as to the results thereof, made by or on behalf
of any  Purchaser,  the  Company  or any of  their  respective  representatives,
officers or directors or any controlling  person,  and will survive  delivery of
and payment for the Offered Securities. If this Agreement is terminated pursuant
to  paragraph 8 or if for any reason the purchase of the Offered  Securities  by
the Purchasers is not consummated,  the Company shall remain responsible for the
expenses  to be  paid  or  reimbursed  by it  pursuant  to  paragraph  5 and the
respective obligations of the Company and the Purchasers pursuant to paragraph 7
shall  remain in  effect.  If the  purchase  of the  Offered  Securities  by the
Purchasers is not  consummated  for any reason other than solely  because of the
termination of this  Agreement  pursuant to paragraph 8 or the occurrence of any
event specified in clause (iii), (iv) or (v) of paragraph 6(b), the Company will
reimburse the  Purchasers for all  out-of-pocket  expenses  (including  fees and
disbursements  of counsel)  reasonably  incurred by them in connection  with the
offering of the Offered Securities.

         10. Notices.  All  communications  hereunder will be in writing and, if
sent to the Purchasers will be mailed, delivered or telegraphed and confirmed to
the Purchasers c/o Credit Suisse First Boston  Corporation,  11 Madison  Avenue,
New York, N.Y. 10010,  Attention:  Investment  Banking  Department  Transactions
Advisory  Group,  or,  if sent to the  Company,  will be  mailed,  delivered  or
telegraphed  and  confirmed  to it at Calpine  Corporation  50 West San Fernando
Street,  San Jose,  California 95113 Attention:  Joseph E. Ronan, Jr.; provided,
however,  that any notice to a Purchaser pursuant to paragraph 7 will be mailed,
delivered or telegraphed and confirmed to such Purchaser.

         11.  Successors.  This  Agreement  will inure to the  benefit of and be
binding  upon  the  parties  hereto  and  their  respective  successors  and the
controlling  persons  referred to in  paragraph 7, and no other person will have
any right or  obligation  hereunder,  except that holders of Offered  Securities
shall be entitled to enforce the agreements  for their benefit  contained in the
second and third  sentences of paragraph  5(c) hereof  against the Company as if
such holders were parties hereto.

         12.  Representation  of  Purchasers.  CSFB  will  act for  the  several
Purchasers in connection with this purchase, and any action under this Agreement
taken by CSFB will be binding upon all the Purchasers.

         13.  Counterparts.  This  Agreement  may be  executed  in any number of
counterparts,  each of which  shall be  deemed to be an  original,  but all such
counterparts shall together constitute one and the same Agreement.


                                       15
<PAGE>


         14.  Applicable 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.

                                       16
<PAGE>




         If the foregoing is in accordance with the Purchasers' understanding of
our  agreement,  kindly sign and return to the  Company one of the  counterparts
hereof, whereupon it will become a binding agreement between the Company and the
several Purchasers in accordance with its terms.

                                            Very truly yours,

                                            CALPINE CORPORATION


                                            By:
                                                 Name:
                                                 Title:




The foregoing Purchase Agreement is hereby confirmed and accepted as of the date
first above written.

         By:  CREDIT SUISSE FIRST BOSTON CORPORATION

         Acting on behalf of themselves and as
            the Representative of the
            several Purchasers.



         By:
              Name:
              Title:

                                       17
<PAGE>




                                   SCHEDULE A







                                                                     Principal
                                                                     Amount of
                                                                     Securities
Purchaser
Credit Suisse First Boston Corporation.................   $         100,000,000
Morgan Stanley & Co. Incorporated .....................   $          30,000,000
Salomon Brothers Inc...................................   $          30,000,000
Scotia Capital Markets (USA) Inc.......................   $          20,000,000
BancAmerica Securities, Inc............................   $          10,000,000
CIBC Wood Gundy Securities Corp........................   $          10,000,000
                                                        -----------------------




                                    Total..............   $         200,000,000
                                                        =======================


                                        18

<PAGE>


                                   SCHEDULE B



                        List of Documents Delivered with
                                Offering Circular


                                      None

                                        19


                           PURCHASE AND SALE AGREEMENT


THIS PURCHASE AND SALE AGREEMENT (this "Agreement") for the purchase and sale of
all of the  shares of Class A Common  Stock of  Enron/Dominion  Cogen  Corp.,  a
Delaware corporation (the "Company"), is made as of the 27th day of March, 1997,
by and between Enron Power Corp., a Delaware corporation ("Seller"), and Calpine
Finance Company, a Delaware corporation ("Buyer").

WHEREAS,  Seller  is the owner of 7,095  shares  of Class A Common  Stock of the
Company,  which constitutes all of the issued and outstanding  shares of Class A
Common Stock of the Company (the "Class A Common Stock"); and

WHEREAS, Seller wishes to sell all of the Class A Common Stock, and Buyer wishes
to purchase all of the Class A Common Stock, on the terms herein set forth; and

WHEREAS,  concurrently with the purchase of the Class A Common Stock pursuant to
this  Agreement,  Buyer  wishes to  purchase  the Long  Term  Debt  (hereinafter
defined)  at the  Facilities  (hereinafter  defined)  from the  lenders  thereof
pursuant  to an  Assignment  Agreement  to be entered  into among Buyer and such
lenders (the "Assignment of Notes");

NOW, THEREFORE, in consideration of the mutual promises made herein, and subject
to the conditions hereinafter set forth, the parties agree as follows:

                                    ARTICLE I
                                   DEFINITIONS

1.1 Definitions.  The terms set forth below shall have the meanings  ascribed to
them in this Article I or in the part of this Agreement referred to below:

Administrative  Services Agreement:  means the Administrative Services Agreement
dated as of  August 1,  1995,  among  ECT,  the  Company,  EC5,  Clear  Lake and
Cogenron.

Affiliate:  means  with  respect  to an entity,  any other  entity  controlling,
controlled  by or  under  common  control  with  such  entity.  As  used in this
definition,  the term "control,"  including the correlative term  "controlling,"
"controlled  by" and "under  common  control  with"  shall mean the  possession,
direct  or  indirect,  of the power to  direct  or cause  the  direction  of the
management  or  policies  of an  entity,  whether  through  ownership  of voting
securities,  by contract or otherwise.  For the avoidance of doubt,  neither the
Company nor any of the Subsidiaries is, nor shall be deemed to be, Affiliates of
Seller.

Agreement:  as defined in the preamble.

Assignment Agreements:  as defined in Section 2.2.


                                       -1-

<PAGE>



Assignment and Assumption Agreement:  as defined in Section 2.2.

Assignment of Notes:  as defined in the preamble.

Auditor:  as defined in Section 2.3.

Average Severance Cost: as defined in Section 5.3.4.

Base Purchase Price:  as defined in Section 2.2

Best  Efforts:  means a party's  best  efforts  in  accordance  with  reasonable
commercial practice and without the incurrence of unreasonable expense.

Business  Day:  means any day other than a Saturday,  a Sunday or a day on which
banks in Houston, Texas are authorized or required by law to be closed.

Buyer:  as defined in the preamble.

Buyer Indemnified Loss:  as defined in Section 7.1.

Buyer's Plans:  as defined in Section 5.3.4.

Bylaws:  as defined in Section 4.1.7.

Certificate of Incorporation:  as defined in Section 4.1.7.

Claim Notice:  as defined in Section 7.4.

Class A Common Stock:  as defined in the preamble.

Class B Common Stock:  as defined in Section 4.1.5.

Clear Lake: means Clear Lake Cogeneration Limited  Partnership,  a Texas limited
partnership.

Clear Lake  Facility:  the 377 megawatt  gas-fired,  combined-cycle  power plant
located in Pasadena, Texas and owned by Clear Lake.

Clear Lake O & M Agreement: the Operations and Maintenance Agreement dated as of
August 1, 1995, among EOC, the Company and Clear Lake.

Closing:  as defined in Article III.

Closing Date:  as defined in Article III.

COBRA: as defined in Section 5.3.4.

                                       -2-

<PAGE>



Code:  means the Internal Revenue Code of 1986, as amended, or any amending or 
superseding tax laws of the United States of America.

Cogenron:  means Cogenron Inc., a Delaware corporation.

Cogen Venture:  means Cogen Technologies NJ Venture, a New Jersey joint venture.

Company:  as defined in the preamble.

Confidentiality Agreement:  as defined in Section 5.2.3.

Credit Support Obligations:  as defined in Section 5.3.1.

December 31 Balance Sheet:  as defined in Section 4.1.9.

Dominion:  means Dominion Cogen, Inc., a Virginia corporation.

Dominion Energy:  means Dominion Energy, Inc., a Virginia corporation.

Dominion Resources:  means Dominion Resources, Inc. , a Virginia corporation.

EC1:  means Enron Cogeneration One Company, a Delaware corporation.

EC3:  means Enron Cogeneration Three Company, a Delaware corporation.

EC5:  means Enron Cogeneration Five Company, a Delaware corporation.

ECT:  means Enron Capital & Trade Resources Corp., a Delaware corporation.

Effective Date:  as defined in Section 2.3.

Effective Date Balance Sheet:  as defined in Section 2.3.

EIPI:  as defined in Section 5.3.4.

Election Period:  as defined in Section 7.4.

Employee Schedule:  as defined in Section 5.3.4.

Environmental   Legal   Requirements:   means  any  and  all  applicable   Legal
Requirements  and orders,  restrictions  and  authorizations  of a  Governmental
Entity,  including the Clean Air Act, the Comprehensive  Environmental Response,
Compensation,  and Liability Act of 1980 ("CERCLA"), the Federal Water Pollution
Control  Act,  the  Occupational  Safety and Health  Act of 1970,  the  Resource
Conservation and Recovery Act of 1976 ("RCRA"), the Safe Drinking Water Act, the
Toxic  Substances  Control Act, the  Hazardous & Solid Waste  Amendments  Act of
1984, the

                                       -3-

<PAGE>



Superfund  Amendments and  Reauthorization  Act of 1986, the Hazardous Materials
Transportation  Act,  and any similar law,  regulation,  or  requirement  of any
Governmental  Entity;  in each case as amended through and in effect on the date
hereof.

EOC:  means Enron Operations Corp., a Delaware corporation.

ERISA:  means the Employee Retirement Income Security Act of 1974, as amended.

Excluded Assets and Liabilities:  as defined in Section 2.3.

Facilities:  the Clear Lake Facility and the Texas City Facility.

Facilities Employees:  as defined in Section 5.3.4.

FERC:  means the Federal Energy Regulatory Commission.

Financial Statements:  as defined in Section 4.1.9.

GAAP:  as defined in Section 2.3.

Governmental  Entity:  means any  court,  governmental  department,  commission,
council,  board, agency or other instrumentality of the United States of America
or any state, county, municipality or local government.

Hazardous Substance:  means any substance presently listed, defined,  designated
or classified as "hazardous  substances" under CERCLA,  "hazardous wastes" under
RCRA, "hazardous materials" under the Hazardous Materials Transportation Act, or
"toxic substances" under the Toxic Substances Control Act.

HCC:  Hoechst Celanese Chemical Corporation.

HSR Act:  means the  Hart-Scott-Rodino  Antitrust  Improvements  Act of 1976, as
amended.

Indemnity Notice:  as defined in Section 7.4.

Indemnified Party:  as defined in Section 7.4.

Indemnifying Party:  as defined in Section 7.4.

Insurance:  as defined in Section 4.1.20.

Knowledge,  when  used in the  phrases  "to  Seller's  knowledge,"  "to  Buyer's
knowledge,"  or "to its  [Seller's  or  Buyer's]  knowledge"  or "if  Seller had
knowledge"  means,  and  shall  be  limited  to,  the  actual  knowledge  of the
appropriate individuals set forth for Seller or Buyer, respectively, on Schedule
1.1(A).

                                       -4-

<PAGE>



Legal  Requirement:  means  all  applicable  laws,  rules,  regulations,  codes,
ordinances,  permits, bylaws, variances,  orders,  conditions, and licenses of a
Governmental Entity.

Lien: means any lien, charge, mortgage, pledge, hypothecation, conditional sales
contract,  or security  interest  (other than any of the foregoing  listed on or
referenced in Schedule  4.1.10,  governmental  permits,  licenses,  consents and
approvals,  encumbrances  imposed  by  federal  or  state  securities  laws  and
restrictions  imposed by the  Certificate  of  Incorporation,  the Bylaws or the
Stockholders' Agreement).

Long Term Debt:  as defined in Section 4.2.8.

Losses:  as defined in Section 7.1.

Material  Adverse  Effect:  means any adverse effect on the business,  assets or
financial  condition of the Company or any of the Subsidiaries  that is material
in light of the business,  assets or financial  condition of the Company and the
Subsidiaries taken as a whole.

Notices:  as defined in Section 9.6.

Partnership Agreement:  as defined in Section 4.1.5.

Past Service:  as defined in Section 5.3.4.

Plans: means "employee benefit plan," as such term is defined in Section 3(3) of
ERISA, including each "multiemployer plan," as such term is described 4001(a)(3)
and Section 3(37) of ERISA, and any terminated employee benefit plan.

Prime Rate: means a rate per annum equal to the lesser of (i) a varying rate per
annum that is equal to the interest rate publicly quoted by Citibank,  N.A. from
time to time as its prime  commercial or similar  reference  interest rate, with
adjustments  in that  varying  rate to be made on the same date as any change in
that rate or (ii) the maximum rate permitted by applicable law.

Proposed Effective Date Balance Sheet:  as defined in Section 2.3.

Purchase Price:  as defined in Section 2.2.

PURPA:  as defined in Section 4.1.17.

PURPA Regulations:  as defined in Section 4.1.17.

PURPA Requirements:  as defined in Section 4.1.17.

Self-Certification Notices:  as defined in Section 4.2.7.

Seller:  as defined in the preamble.

                                       -5-

<PAGE>



Seller Indemnified Loss:  as defined in Section 7.2.

Seller's Interest:  as defined in Section 2.3.

Severance Plan:  as defined in Section 5.3.4.

Stockholders' Agreement:  means that certain Stockholders' Agreement dated as of
June 27, 1988,  among Seller (as successor to Enron Corp.),  Dominion  Resources
and Dominion.

Subsidiaries:  EC1, EC3, Clear Lake and Cogenron.

Surety Agreement:  means the Surety Agreement dated as of June 12, 1985, between
Enron Corp.  (as  successor to  InterNorth  Inc.) and Texas  Utilities  Electric
Company.

Tax Returns:  as defined in Section 4.1.14.

Taxes:  means  all  federal,  state,  local,  Indian  nation or  foreign  taxes,
assessments  or  other  governmental  charges,  together  with any  interest  or
penalties thereon.

Texas City Facility: means the 450 megawatt gas-fired combined-cycle power plant
located in Texas City, Texas and owned by Cogenron.

Texas  Facilities:  means,  collectively,  the Clear Lake Facility and the Texas
City Facility.

Texas City O & M Agreement:  the Operations and Maintenance  Agreement (Cogenron
Inc.)  dated as of August 1, 1995,  as  amended,  among  EOC,  the  Company  and
Cogenron.

Texas Plant Sites:  means,  collectively,  the  physical  locations of the Texas
Facilities.

Third Party Claim:  as defined in Section 7.4.

UCC Guaranty  Agreement:  the Guaranty  Agreement  dated as of June 12, 1985, as
amended, between Cogenron and Union Carbide Corporation.

Unaudited Financial Statements:  as defined in Section 4.1.9.

Working Capital:  as defined in Section 2.3.

Year End Financials:  as defined in Section 4.1.9.

1.2  Terminology.  All  article,  section,  subsection,   schedule  and  exhibit
references  used  in  this  Agreement  are to this  Agreement  unless  otherwise
specified.  All schedules and exhibits  attached to this Agreement  constitute a
part of this Agreement and are incorporated  herein.  Unless the context of this
Agreement clearly requires otherwise,  (i) the singular shall include the plural
and the  plural  shall  include  the  singular  wherever  and as often as may be
appropriate, (ii) the words

                                       -6-

<PAGE>



"includes" or "including" shall mean "including  without  limitation," and (iii)
the words "hereof,"  "herein,"  "hereunder," and similar terms in this Agreement
shall  refer to this  Agreement  as a whole and not any  particular  section  or
article in which such words appear.  Currency amounts  referenced  herein are in
United States Dollars.  References to "generally accepted accounting principles"
herein shall refer to such  principles in effect in the United States of America
as of the date of the statement to which such phrase refers.


                                   ARTICLE II
                                PURCHASE AND SALE

2.1 Purchase and Sale of Class A Common Stock. Upon the terms and subject to the
conditions of this Agreement,  at the Closing Seller will sell, assign,  convey,
transfer and deliver to Buyer free and clear of Liens,  and Buyer will  purchase
and accept from Seller, the Class A Common Stock.

2.2 Purchase Price. (A) The purchase price (the "Purchase  Price") to be paid by
Buyer  for the Class A Common  Stock  shall be an  amount  equal to  Thirty-Five
Million Four  Hundred  Twenty-Five  Thousand  Dollars  ($35,425,000)  (the "Base
Purchase  Price"),  as adjusted  pursuant to Section 2.3 and as Buyer and Seller
may otherwise agree.

         (B) Upon the terms and subject to the conditions of this Agreement,  at
the  Closing,  (i) Seller will deliver to Buyer,  and Buyer will accept,  one or
more stock  certificates  representing all of the Class A Common Stock,  against
payment  therefor by Buyer to Seller of the Base Purchase  Price, in immediately
available  funds by wire  transfer to one or more bank  accounts  designated  by
Seller,  and (ii)  Buyer or  Calpine  Corporation  will  assume  the  rights and
obligations  of Seller  and its  Affiliates  under the  agreements  set forth on
Schedule 4.1.10(C)  pursuant to the Omnibus  Assignment and Assumption  Consent,
Novation  and  Amendment  Agreements  in the  form  of  Exhibit  A  hereto  (the
"Assignment  and  Assumption  Agreements"),   and  an  agreement  regarding  the
Stockholders'  Agreement in form and substance satisfactory to Buyer and Seller,
pursuant to which Enron Corp. or Seller will assign, and Calpine  Corporation or
Buyer  will  assume,  all of Enron  Corp.'s  rights  and  obligations  under the
Stockholders'  Agreement.  In  addition,  but subject to Seller's  rights  under
Section 8.1(v) and subject to obtaining  consents to such assignments from Clear
Lake and Cogenron,  respectively,  and from the respective  holders of Long Term
Debt  secured by each of the  Facilities,  Seller  shall cause EOC to assign its
rights and  interests as operator  under the Clear Lake O & M Agreement  and the
Texas City O & M  Agreement  to  Calpine  Corporation  or one of its  Affiliates
designated by Buyer pursuant to assignment and assumption agreements in form and
substance  satisfactory  to Seller and Buyer.  The agreements  described in this
Section 2.2(B)  pursuant to which rights and  obligations are to be assigned and
assumed are collectively referred to as the "Assignment Agreements."

2.3  Determination of Purchase Price.  (A) As promptly as practicable  following
the Closing Date, but in any event within 90 days after the Closing Date,  Buyer
shall submit to Seller a proposed  balance  sheet  prepared by the Company as of
the close of business on March 31, 1997 (the "Effective  Date"), for the Company
and the  Subsidiaries,  excluding  all items  relating  to EC5 or Cogen  Venture
(including  (i) all cash  received  by EC5 or from  Cogen  Venture  in the three
months

                                       -7-

<PAGE>



ending March 31, 1997, which is payable to Dominion pursuant to Section 2 of the
Amendment to  Reorganization  Agreement  dated as of June 30, 1991, and (ii) any
associated  account  payable  to  Dominion  or its  Affiliates  related  to cash
receipts by EC5 or from Cogen Venture which is then  outstanding  (the "Excluded
Assets  and  Liabilities"))  (the  "Proposed  Effective  Date  Balance  Sheet"),
prepared in accordance with generally accepted accounting  principles applied on
a  consistent  basis  ("GAAP")  and  otherwise  on a basis  consistent  with the
December  31  Balance  Sheet  (defined  in  Section  4.1.9(B)),   together  with
appropriate   supporting   calculations  and  documentation  setting  forth,  in
reasonable  detail, the preparation of the balance sheet. If Seller disputes the
correctness of the Proposed  Effective  Date Balance Sheet,  Seller shall notify
Buyer of its  objections in writing within 30 days after receipt of the Proposed
Effective Date Balance Sheet,  which notice shall set forth in reasonable detail
the reasons for  Seller's  objections.  If Seller  fails to deliver  such notice
within such 30-day period,  Seller shall be deemed to have accepted the Proposed
Effective Date Balance Sheet (including Buyer's calculations therein). Buyer and
Seller shall endeavor in good faith to resolve any disputed items within 30 days
after Buyer's receipt of Seller's notice of objections. If they are unable to do
so,  each party  shall have the right to refer the  dispute to Deloitte & Touche
(the "Auditor") for resolution and determination of the Proposed  Effective Date
Balance   Sheet  to  reflect  what  is  required  by  this  Section  2.3.   Such
determination by the Auditor shall be conclusive and binding on the parties. The
fees of the  Auditor  incurred in  resolving  any such  dispute  shall be shared
equally by Seller and Buyer, unless the Auditor determines that, as a whole, the
positions  taken by Buyer in the Proposed  Effective  Date  Balance  Sheet or by
Seller in its  objections  to the Proposed  Effective  Date  Balance  Sheet were
without merit, in which case the party making the unmeritorious  assertion shall
pay the  Auditor's  entire fee. The balance  sheet as of the  Effective  Date as
finally determined pursuant to this Section 2.3 (whether by failure of Seller to
deliver notice of objection,  by agreement of the parties or by determination by
the Auditor) is referred to herein as the "Effective Date Balance Sheet".

         (B) The Purchase  Price shall be calculated  as follows.  To the extent
that Working Capital (defined below) on the Effective Date Balance Sheet exceeds
Working  Capital on the December 31 Balance Sheet (the December 31 Balance Sheet
not being  adjusted  for the items  described on Schedule  4.1.9(C)),  or to the
extent  that the Company or the  Subsidiaries  have made  unscheduled  principal
payments  (i.e.,  payments  other  than  those  required  to be made  under  the
applicable amortization schedule) of Long Term Debt since December 31, 1996, the
Purchase Price shall be increased above the Base Purchase Price to the extent of
Seller's Interest (defined below) in the differences thereof. To the extent that
Working Capital on the Effective Date Balance Sheet is less than Working Capital
on the  December  31 Balance  Sheet  (the  December  31 Balance  Sheet not being
adjusted for the items described on Schedule 4.1.9(C)), the Purchase Price shall
be reduced below the Base Purchase  Price to the extent of Seller's  Interest in
the differences thereof. If the Purchase Price is greater than the Base Purchase
Price, Buyer shall pay Seller the difference  thereof.  If the Purchase Price is
less than the Base  Purchase  Price,  Seller  shall  pay  Buyer  the  difference
thereof.  All  amounts  owed for  Purchase  Price  adjustments  pursuant to this
Section 2.3 shall be netted as  appropriate  so that only one  payment  shall be
made,  all such amounts shall bear interest at the Prime Rate from and including
the Closing Date through and excluding the date of payment,  and all adjustments
shall be made without duplication.  Any payment shall be made not later than two
Business  Days after final  determination  of the  Effective  Date Balance Sheet
pursuant to this

                                       -8-

<PAGE>



Section 2.3 in  immediately  available  funds by wire transfer to a bank account
designated by the party entitled to receive the payment.

         (C) For purposes of this Agreement, (i) "Working Capital" means current
assets  (including  without  limitation  cash  and  cash  equivalents,  accounts
receivable,   materials  and  supplies,  and  prepaid  expenses)  minus  current
liabilities  (including  without  limitation  accounts payable and other accrued
current  liabilities,  but  excluding  current  maturities  of long term  debt),
excluding  any items  related to EC5 or Cogen  Venture  (including  the Excluded
Assets and  Liabilities)  and  determined  in  accordance  with  GAAP;  and (ii)
"Seller's  Interest"  means,  with  respect to changes  in Working  Capital  and
unscheduled principal payments of Long Term Debt, 50%.

                                   ARTICLE III
                                  CLOSING DATE

The  consummation  of the purchase and sale of the Class A Common Stock shall be
held at a meeting (the  "Closing") at the offices of Vinson & Elkins,  L.L.P. at
10:00 A.M., Houston, Texas time, three Business Days after the date on which the
last condition  contained in Article VI is satisfied or waived, or at such other
time, date and place as may be mutually agreed to in writing by the parties. The
date on which the Closing  actually occurs is referred to herein as the "Closing
Date."


                                   ARTICLE IV
                         REPRESENTATIONS AND WARRANTIES

4.1  Representations  and  Warranties of Seller.  Seller hereby  represents  and
warrants to Buyer as follows:

         4.1.1  Organization  and Good  Standing.  Seller is a corporation  duly
organized and validly existing under the laws of the State of Delaware and is in
good standing under the laws of the States of Delaware and Texas.

         4.1.2 Authority of Seller. Seller has all requisite corporate power and
authority  to  enter  into  this  Agreement,   to  consummate  the  transactions
contemplated  hereby and to perform  all the terms and  conditions  hereof to be
performed by it. The  execution,  delivery and  performance of this Agreement by
Seller and the transactions contemplated hereby to be consummated by Seller have
been duly authorized by all requisite corporate action by Seller. This Agreement
has been duly  executed  and  delivered  by Seller and  constitutes  a valid and
binding  agreement of Seller  enforceable  against Seller in accordance with its
terms  subject to  applicable  bankruptcy,  insolvency  and other  similar  laws
relating to or affecting the enforcement of creditors'  rights  generally and to
general principles of equity (regardless of whether enforcement is considered in
a proceeding in equity or at law).

         4.1.3 No  Violations  With  Respect to  Seller.  Except as set forth in
Schedule  4.1.3,  the execution and delivery of this Agreement by Seller and the
consummation of the transactions contemplated hereby to be consummated by Seller
or its Affiliates do not: (i) violate or conflict with

                                       -9-

<PAGE>



any of the provisions of the certificate of  incorporation  or bylaws of Seller;
(ii) conflict  with,  result in a breach of, or constitute a default  under,  or
accelerate or permit the acceleration of the performance required by, or require
any consent,  authorization  or approval  under any material  agreement or other
instrument to which Seller is a party or by which Seller or its  properties  are
bound;  (iii)  violate  or  conflict  in any  material  respect  with any  Legal
Requirements or any foreign law, rule,  regulation,  code,  ordinance,  material
permit or material  license;  or (iv)  constitute  an event which,  with notice,
lapse of time or both would  result in any such  material  violation,  conflict,
breach or default.

         4.1.4   Approvals  and  Consents  for  Seller.   No  filing,   consent,
authorization  or approval  under any Legal  Requirement  binding upon Seller is
required to be made or  obtained  by Seller in order to execute or deliver  this
Agreement  or to  consummate  the  transactions  contemplated  hereby by Seller,
except with respect to the filings required under the HSR Act and except for any
filings, consents, authorizations or approvals that, if not made or obtained, in
the aggregate would not have a Material Adverse Effect.

         4.1.5    Ownership.

         (A) Schedule  4.1.5 (A) sets forth all of the classes of capital  stock
of the Company,  the number of authorized shares of such classes,  the number of
issued and outstanding shares of such classes and the par value thereof.

         (B) Seller owns  beneficially and of record 7,095 shares of the Class A
Common  Stock.  All of such  shares  of  Class A Common  Stock  have  been  duly
authorized, validly issued and are fully paid and non-assessable.  Upon delivery
of and payment for the Class A Common Stock as provided  herein,  at the Closing
Buyer will  acquire good title to the Class A Common Stock free and clear of all
Liens other than Liens created by, through or under Buyer or its Affiliates.

         (C)  Except  as  provided  in  this  Agreement,   the  Bylaws  and  the
Stockholders'  Agreement, no subscription,  option,  warrant,  conversion right,
call or other agreement or commitment of any character is outstanding obligating
Seller,  the Company or (assuming  that neither  Buyer nor its  Affiliates  have
entered into any such agreement or commitment) any subsequent owner of the Class
A Common  Stock to deliver or sell any Class A Common  Stock or any  securities,
options,  rights or warrants  exchangeable  for or convertible  into the Class A
Common  Stock or any other  class of  capital  stock of the  Company.  Except as
provided in the  Stockholders'  Agreement,  there are no voting  agreements with
respect to the Class A Common Stock or other agreements restricting the right of
the owner of the  Class A Common  Stock to sell,  transfer,  grant a Lien on, or
otherwise  dispose of the Class A Common Stock,  assuming that neither Buyer nor
its Affiliates have entered into any such agreement.

         (D) Dominion owns of record 7,095 shares of Class B Common Stock of the
Company (the "Class B Common  Stock").  The Class A Common Stock and the Class B
Common Stock together constitute all of the issued and outstanding capital stock
of the Company. To Seller's knowledge,  except for the Stockholders'  Agreement,
there are no voting agreements with respect to the Class B Common Stock.

                                      -10-

<PAGE>



         (E) The  Subsidiaries,  EC5 and  Cogen  Venture  constitute  all of the
corporations,  partnerships,  joint  ventures  and other  entities  in which the
Company  directly or  indirectly  owns an equity  interest.  The total number of
shares of authorized capital stock, and the classes and par values thereof,  and
the number of issued  and  outstanding  shares of each such  class  owned by the
Company,  of each  Subsidiary  that is a  corporation  are set forth on Schedule
4.1.5 (E). Other than as provided in this Agreement,  no  subscription,  option,
warrant,  conversion  right,  call  or  other  agreement  or  commitment  of any
character is outstanding obligating the Company, any of the Subsidiaries that is
a corporation,  or EC5 to deliver or sell any equity  interest in any Subsidiary
that is a corporation or in EC5 or any securities,  options,  rights or warrants
exchangeable  for or convertible  into any such equity  interest.  Except as set
forth on Schedule 4.1.5 (E),  neither the Company,  the Subsidiaries nor EC5 has
any  outstanding  indebtedness  for  borrowed  money  or any  other  issued  and
outstanding securities.

         (F) The Company owns a 98% limited  partner  interest in Clear Lake and
EC3 owns a 2% general partner  interest in Clear Lake. Other than as provided in
the Agreement of Limited Partnership dated January 29, 1988, between the Company
and EC3 (the "Partnership Agreement"),  there are no outstanding  subscriptions,
options, warrants or calls of any kind issued or granted by, or binding upon the
Company, EC3 or Clear Lake to purchase or otherwise acquire (whether directly or
through the purchase of any option or  convertible  security) any security of or
equity interest in Clear Lake.

         4.1.6    Company and Subsidiaries:

         (A) The Company and each of the  Subsidiaries  that is a corporation is
duly  organized,  validly  existing and in good  standing  under the laws of the
State of Delaware  and is in good  standing in the States of Delaware and Texas.
EC5 is a corporation duly organized, validly existing and in good standing under
the laws of the  State of  Delaware  and is in good  standing  in the  states of
Delaware and New Jersey. Neither the Company, any of the Subsidiaries nor EC5 is
qualified  to do business as a foreign  corporation  in any other  jurisdiction.
Neither the character of the properties now owned or leased by the Company,  the
Subsidiaries  or EC5 nor the nature of the business now conducted by any of them
require  them to be so  qualified,  except  where the failure to be so qualified
would not have a Material Adverse Effect.

         (B)  Clear  Lake is a  limited  partnership  duly  formed  and  validly
existing  under the laws of the State of Texas  and is in good  standing  in the
State of Texas.  Clear Lake is not qualified to do business as a foreign limited
partnership in any other  jurisdiction.  Neither the character of the properties
now owned or leased by Clear Lake nor the nature of the business  now  conducted
by it  requires  it to  be so  qualified,  except  where  the  failure  to be so
qualified would not have a Material Adverse Effect.

         4.1.7 No Violation With Respect to Company and Subsidiaries. Seller has
previously  furnished  Buyer with correct and complete copies of the Certificate
of Incorporation of the Company (the "Certificate of Incorporation"), the Bylaws
of the Company (the  "Bylaws"),  the  Stockholders'  Agreement,  certificates of
incorporation  and  bylaws  of  each  Subsidiary  that  is  a  corporation,  the
certificate of incorporation of EC5, the Partnership Agreement,  the certificate
of limited partnership

                                      -11-

<PAGE>



of Clear Lake and the Amended and  Restated  Joint  Venture  Agreement  of Cogen
Venture.  Except  as set forth on  Schedule  4.1.7  hereto,  the  execution  and
delivery  hereof by Seller does not, and the performance and compliance with the
terms and  conditions  hereof  by it and the  consummation  of the  transactions
contemplated hereby by Seller or its Affiliates will not:

         (A) violate or  conflict  with any  provision  of the  certificates  of
incorporation or bylaws of the Company, the Subsidiaries, EC5, the Stockholders'
Agreement, or the Partnership Agreement;

         (B) violate or conflict  with any  provision of or, except with respect
to the HSR Act, require any material filing, consent,  authorization or approval
under any Legal Requirements binding upon the Company, the Subsidiaries or EC5;

         (C) in any  material  respect,  conflict  with,  result in a breach of,
constitute a default  under  (whether with notice or the lapse of time or both),
or  accelerate or permit the  acceleration  of the  performance  required by, or
require any consent, authorization or approval or trigger any preferential right
of purchase under (i) any mortgage,  indenture,  loan or credit agreement or any
other  material  agreement  or  instrument  evidencing  indebtedness  for  money
borrowed,  or any financing lease to which the Company, any Subsidiary or EC5 is
a party or by which  any of them is  bound or to which  any of their  respective
properties is subject or (ii) any other material lease,  contract,  agreement or
instrument  to which  any of them is a party or by which any of them is bound or
to which any of their respective properties is subject; or

         (D)  except  as set forth in  agreements  entered  into  after the date
hereof that are approved by Buyer,  result in the creation or  imposition of any
Lien upon any material asset of the Company, the Subsidiaries or EC5;

in the case of clauses  (B)  through  (D),  except for any  matters  that in the
aggregate would not have a Material Adverse Effect.

         4.1.8    No Default; Legal Requirements.  Except as set forth in 
Schedule 4.1.8 hereto:

         (A)  Neither  the  Company,  the  Subsidiaries  nor EC5 is in breach or
violation of, or in default under,  and no condition  exists that with notice or
lapse of time or both would  constitute such a default under,  (i) any mortgage,
indenture, loan or credit agreement,  evidence of indebtedness or other material
instrument  evidencing or securing  borrowed  money,  or any financing  lease to
which any of them is a party or by which any of their  respective  properties is
bound,  (ii) any  judgment,  order or  injunction  of any court or  governmental
agency  or  (iii)  any  other  agreement,  contract,  lease,  license  or  other
instrument;  except for  breaches,  violations,  defaults  and  conditions  that
individually or in the aggregate would not have a Material Adverse Effect;  and,
to Seller's  knowledge,  no such  breaches,  violations  or  defaults  have been
asserted in writing against the Company, the Subsidiaries or EC5; and

         (B) Neither the Company,  the  Subsidiaries  nor EC5 is in violation of
any  Legal  Requirement,  except  for  violations  that  individually  or in the
aggregate would not have a Material Adverse Effect.

                                      -12-

<PAGE>



         4.1.9    Financial Statements.

         (A) Seller has delivered to Buyer the audited  financial  statements of
the Company as of December  31, 1993,  December 31, 1994,  and December 31, 1995
(the "Year End  Financials")  certified by the Auditor.  The Year End Financials
were  prepared  in  accordance  with GAAP and  present  fairly  in all  material
respects,  the financial  position,  results of  operations  and changes in cash
flows of the Company at the dates and for the periods therein indicated.

         (B)  Seller  has  also  delivered  to  Buyer  the  unaudited  financial
statements of the Company as of December 31, 1996,  including a balance sheet as
of December 31, 1996, a copy of which is attached hereto as Schedule 4.1.9(B)-1,
(the "December 31 Balance Sheet") and income and cash flow statements as of such
date (the unaudited  financial  statements  collectively  are referred to as the
"Unaudited Financial Statements," and collectively with the Year End Financials,
the "Financial  Statements").  The Unaudited Financial  Statements were prepared
from the Company's and the  Subsidiaries'  books and records in accordance  with
GAAP and,  with  respect to the  December 31 Balance  Sheet,  as adjusted by the
numbers  reflected on Schedule  4.1.9(C) hereby,  present fairly in all material
respects the financial position,  results of operations and changes in cash flow
of the  Company  and the  Subsidiaries  at the dates and for the period  therein
indicated,  except to the extent such  statements  would be affected by year end
and audit adjustments and except that such statements do not contain  footnotes.
Except as set forth on Schedule  4.1.9(B)-2 hereto,  the contingent  liabilities
described in the footnotes to the audited financial statements of the Company as
of  December  31,  1996  will  not  materially  and  adversely  differ  from the
contingent  liabilities  described in the Company's audited financial statements
as of December 31, 1995.

         (C)  Except as set forth on  Schedule  4.1.9(C),  the  Company  and the
Subsidiaries have no liabilities  exceeding $100,000 in the aggregate that would
be required to be  reflected on a balance  sheet (not  including  the  footnotes
thereto) prepared in accordance with GAAP applied on a basis consistent with the
Financial  Statements,  except for (i) liabilities  reflected on the December 31
Balance Sheet, (ii) liabilities incurred since December 31, 1996 in the ordinary
course  of  business  and  (iii)  liabilities  with  respect  to which  separate
agreements  have been entered into between Seller or its Affiliates and Buyer or
its Affiliates concurrently with the execution of this Agreement.

         (D) Since  December  31,  1996,  (i) the Company has neither  declared,
provided for nor made any dividends or  distributions to its  shareholders,  and
(ii) neither the Company nor the  Subsidiaries has (a) made any material changes
in its  accounting  methods,  or (b) sold or otherwise  disposed of any material
portion of its assets,  except for sales or  dispositions in the ordinary course
of business or pursuant to contracts listed on Schedule 4.1.10 (A).

         4.1.10  Leases;  Contracts;  Agreements and  Commitments.  (A) Schedule
4.1.10(A)  sets  forth  a  list  of the  following  written  leases,  contracts,
agreements,  and contractual commitments to which the Company, any Subsidiary or
EC5 is a party or by which any of them or their  respective  assets  are  bound,
correct and  complete  copies of which have  previously  been made  available to
Buyer:


                                      -13-

<PAGE>



         (i) each lease, easement, right of way and license with respect to real
property  that  is  necessary  to  conduct,  in  all  material  respects,  their
respective  businesses  as they are  currently  being  conducted  and any  other
material agreement with respect to real property;

         (ii)     each lease of personal property providing for rental payments 
in excess of $50,000 per year;

         (iii) each agreement  involving $25,000 or more to contribute,  lend or
advance  funds to, or to purchase any  additional  equity  interest in any other
person;

         (iv) each agency agreement involving more than $50,000 in any one year;

         (v) each mortgage,  indenture, note, loan agreement,  pledge agreement,
security  document,   installment  obligation,   or  other  instrument,   credit
agreement,  or  reimbursement  agreement for or relating to any borrowing (other
than  short-term  borrowing in the ordinary  course of business) in an amount in
excess of $50,000;

         (vi)     each collective bargaining agreement, employment agreement or 
consulting agreement;

         (vii) each guaranty,  reimbursement  agreement,  bond,  surety,  or any
other  direct or  indirect  agreement  to pay or perform any  obligation  of any
person  or  entity  given  by the  Company,  any  Subsidiary  or EC5,  excluding
endorsements in the ordinary course of business;

         (viii)  each  agreement  that  expressly  prohibits  the  Company,  any
Subsidiary or EC5 from  competing with the  counterparty  in such a manner as to
materially  restrict the right of any of them to engage in any material business
in which any of them is now engaged;

         (ix)     each partnership, joint venture, shareholders or similar 
agreement;

         (x) each  agreement  for a  duration  of  greater  than 30 days for the
purchase  or  sale of  fuel,  electric  energy  or  capacity,  or  steam  or the
transportation  of fuel,  wheeling of power or  interconnection  agreements that
would be in effect on the Closing Date;

         (xi)   each agreement providing for the purchase or option to purchase 
all or substantially all of the assets of the Company, any Subsidiary or EC5;

         (xii)  each  material  agreement  between  Seller,  Dominion  or  their
respective Affiliates, on the one hand, and the Company, any Subsidiary, or EC5,
on the other hand,  other than  agreements  that will be terminated on or before
the Closing Date and for which the Company  will have no  liability  thereafter;
and

         (xiii) all other  agreements of a duration of greater than 90 days that
cannot be terminated without a penalty to the Company or any Subsidiary and that
have a total consideration of more than $50,000 during the primary contract term
that would be in effect on the Closing Date.

                                      -14-

<PAGE>



         (B)  Schedule  4.1.10(B)  sets forth a list of each  agreement to which
Seller or any of its Affiliates is a party that directly  relates to the Company
and that, if the obligations thereunder are not performed, could have a Material
Adverse Effect.

         (C)  Schedule  4.1.10(C)  sets  forth  a  list  of  certain  contracts,
agreements,  or contractual  commitments to which Seller or its Affiliates are a
party and the rights and  obligations  under which  Buyer or Buyer's  Affiliates
will assume  pursuant  to the  Assignment  Agreements.  Except as  disclosed  on
Schedule 4.1.10(C), Seller and such Affiliates are not in default under any such
agreement or commitment,  except where such defaults in the aggregate  would not
have a Material  Adverse Effect or, with respect to obligations of Seller or its
Affiliates  under such  contracts,  agreements or  commitments  to be assumed by
Buyer or its Affiliates that provide equity support in respect of the Company or
the  Subsidiaries,  that  would  not  have  a  material  adverse  effect  on the
obligations  of  Buyer  and its  Affiliates  as  successors  to  Seller  and its
Affiliates  under  such  contracts,   agreements  or  commitments.   Except  for
agreements to be assumed pursuant to the Assignment  Agreements,  Buyer will not
assume any liabilities or obligations of Seller or its Affiliates.

         4.1.11  Litigation.  Schedule  4.1.11 sets forth a list of all lawsuits
and  administrative   proceedings  pending  or,  to  the  knowledge  of  Seller,
threatened against the Company, any Subsidiary or EC5. Schedule 4.1.11 also sets
forth a list of all lawsuits and administrative  proceedings  pending, or to the
knowledge of Seller,  threatened  against Seller or its Affiliates that directly
relate to the Company,  any Subsidiary or EC5. To Seller's knowledge,  there are
no material  investigations  by any  Governmental  Entity  pending or threatened
against the Company, any Subsidiary or EC5.

         4.1.12  Government  Permits.  Each of the Company and the  Subsidiaries
have all permits,  licenses,  consents and approvals from Governmental  Entities
required  to be  obtained  by any of them that are  necessary  to conduct  their
business  in  accordance  with  Legal  Requirements  as  it is  currently  being
conducted,  except  where the  failure  to have same  would not have a  Material
Adverse Effect.

         4.1.13 Employee Benefits. Each of the Company, the Subsidiaries and EC5
(i) is not,  and has  never  been  treated  as being a "single  employer"  under
Section  414 of  the  Code  with  any  other  Person  which  has  maintained  or
contributed to or had any liability (contingent or otherwise) to, under or based
upon any Plan, (ii) does not have, and never has had, any "employees" as defined
in  Section  3(6) of ERISA,  and  (iii)  does  not,  and has  never  maintained,
contributed to or had any liability (contingent or otherwise) to, under or based
upon any Plan,  including Plans maintained by any member of a "controlled group"
(as  defined  in Section  414 of the Code) or any plan that is a  "multiemployer
plan" (as defined in ERISA).

         4.1.14   Tax Matters.  Except as set forth in Schedule 4.1.14:

         (i)(a) All returns and reports  ("Tax  Returns")  of or with respect to
any and all Taxes which are  required to be filed on or before the Closing  Date
(taking  into  account any  extensions  permitted  under  Section  5.3.2) by the
Company  and the  Subsidiaries  have been duly and  timely  filed  (taking  into
account any extensions permitted under Section 5.3.2);


                                      -15-

<PAGE>



         (b) All Taxes which have become due by the Company or the  Subsidiaries
(taking into account any extensions  permitted under Section 5.3.2) with respect
to the  period  covered by each such Tax Return  have been  timely  paid in full
(taking into account any extensions permitted under Section 5.3.2); and

         (ii) There is no  pending  written  claim  against  the  Company or the
Subsidiaries  for  any  Taxes  that  are  due and  payable,  and no  assessment,
deficiency or adjustment has been asserted or, to Seller's  knowledge,  proposed
with respect to any Tax Return of the Company or the Subsidiaries.  There are no
audits or investigations  pending or, to Seller's knowledge,  threatened against
the Company or the Subsidiaries.

         4.1.15  Real  Property.   Schedule   4.1.15  hereto  sets  forth  legal
descriptions  of the  Facilities  as they  appear  in the  leases  with  respect
thereto.  Neither the Company nor any  Subsidiary  owns fee simple  title to any
real  property.  To  Seller's  knowledge,  such  legal  descriptions  accurately
describe,  in all material  respects,  the real property on which the Clear Lake
Facility and the Texas City Facility are located.

         4.1.16  Environmental  Matters.  Except as set forth on Schedule 4.1.16
hereto and except where any of the following  would not have a Material  Adverse
Effect,  (i) neither the Company nor the  Subsidiaries  are in  violation of any
Environmental  Legal Requirement as a result of the operation of the business by
the Company or the Subsidiaries, (ii) no Hazardous Substances are present on, at
or under the Texas Plant Sites as a result of the  operation  of the business by
the Company or the Subsidiaries in quantities, concentrations, or locations that
require remedial action by any of them under  Environmental  Legal Requirements,
and, to Seller's knowledge,  no such Hazardous  Substances are present on, at or
under the Texas Plant Sites as a result of any other  source or cause that would
require such remedial action,  (iii) neither Seller nor the Company has received
any  written  notice,  demand  letter,  or  request  for  information  from  any
Governmental  Entity or any third party  indicating that Seller,  the Company or
the  Subsidiaries may be in violation of, or liable under,  Environmental  Legal
Requirements,  which  matter has not been finally  resolved or settled,  (iv) no
Hazardous  Substance has been disposed of or transported from the business while
owned or operated by the Company or the  Subsidiaries  except as permitted under
applicable  Environmental Legal Requirements or has been released on or from the
business by the Company or the Subsidiaries or the Texas Plant Sites while owned
or operated by the Company or the Subsidiaries which requires  remediation under
applicable Environmental Legal Requirements,  and (v) there has been no exposure
of any  person or  property  to  Hazardous  Substances  in  connection  with the
business by the Company or the Subsidiaries,  which exposure has (i) resulted in
a material  claim  against the Company or the  Subsidiaries  or (ii) to Seller's
knowledge,  would be the basis for such a claim. This Section 4.1.16 is intended
to, and shall be, the sole  representation  and warranty in this  Agreement with
respect to  environmental  matters and no other  representation  and warranty in
this Agreement shall be construed as covering any environmental matters.

         4.1.17   Regulatory Matters.

         (A) Neither  Seller,  the Company,  nor any of the  Subsidiaries  is an
"investment  company" within the meaning of the Investment  Company Act of 1940,
as amended.

                                      -16-

<PAGE>



         (B) Each of the Seller, the Company and the Subsidiaries is not subject
to, or is exempt from regulation as, an "electric utility  company",  a "holding
company," a "subsidiary  company" of a "holding  company," an  "affiliate"  of a
"holding  company," or an  "affiliate"  of a "subsidiary  company" of a "holding
company," in each case as such terms are defined in the Public  Utility  Holding
Company Act of 1935, as amended.

         (C) Each of the Facilities is a "qualifying  cogeneration facility," as
such term is defined in the Federal Power Act, as amended by the Public  Utility
Regulatory  Policies Act of 1978  ("PURPA"),  the regulations of FERC thereunder
("PURPA  Regulations"),  and the current  interpretations  of FERC and courts of
competent jurisdiction of PURPA and such regulations  (collectively,  PURPA, the
regulations and all such interpretations, the "PURPA Requirements").

         4.1.18 Sole  Purpose;  Nature of Business.  Neither the Company nor any
Subsidiary  has  conducted or is  conducting  any business  other than  business
relating to the development,  financing, acquisition,  construction,  ownership,
operation and maintenance of the Facilities and the sale of energy produced from
the Facilities.

         4.1.19  Brokerage or Finders Fees.  All  negotiations  relating to this
Agreement and the transactions  contemplated  hereby have been conducted without
the  intervention  of any  person or entity  acting  on  behalf of  Seller,  its
Affiliates  or the  Company  in such a manner as to give  rise to a valid  claim
against  Buyer,  the  Company or any  Subsidiary  for any  broker's  or finder's
commission, fee or similar compensation.

         4.1.20  Insurance.  Set  forth on  Schedule  4.1.20  is a  correct  and
complete  list of all  operating  insurance  applicable  to the  Facilities  and
maintained  on behalf of the Company  and the  Subsidiaries  (the  "Insurance"),
listing  the types of  coverages,  amounts of  coverage  and  deductibles.  Such
insurance  is in full force and effect and  complies in all  materials  respects
with  all  material  requirements  of all  material  agreements  binding  on the
Company,  either  Subsidiary  or EOC,  as  operator  under  the  Clear  Lake O&M
Agreement and the Texas City O&M Agreement.

         4.1.21 Material Assets and Properties. Except for assets and properties
listed on Schedule 4.1.21 hereto, and except for assets and properties  provided
pursuant to the Administrative Services Agreement, each of the Subsidiaries owns
or otherwise has the right to use the assets and properties reasonably necessary
to conduct their respective  businesses as they are now conducted;  except where
the failure to have same would not have a Material Adverse Effect.

4.2      Representations and Warranties of Buyer.  Buyer hereby represents and 
warrants to Seller as follows:

         4.2.1    Organization and Good Standing.  Buyer is a corporation duly 
organized, validly existing and in good standing under the laws of the State of 
Delaware.

         4.2.2 Authority of Buyer.  Buyer has all requisite  corporate power and
authority  to  enter  into  this  Agreement,   to  consummate  the  transactions
contemplated  hereby and to perform  all the terms and  conditions  hereof to be
performed by it. The execution, delivery and performance of this

                                      -17-

<PAGE>



Agreement by Buyer and the transactions contemplated hereby to be consummated by
Buyer have been duly authorized by all requisite corporate action by Buyer. This
Agreement has been duly executed and delivered by Buyer and  constitutes a valid
and binding agreement of Buyer enforceable  against Buyer in accordance with its
terms  subject to  applicable  bankruptcy,  insolvency  and other  similar  laws
relating to or affecting the enforcement of creditors'  rights  generally and to
general principles of equity (regardless of whether enforcement is considered in
a proceeding in equity or at law).

         4.2.3 No  Violations.  The execution and delivery of this  Agreement by
Buyer  and  the  consummation  of the  transactions  contemplated  hereby  to be
consummated  by Buyer do not and will not:  (i) violate or conflict  with any of
the provisions of the certificate of incorporation  or bylaws of Buyer;  (ii) in
any  material  respect  conflict  with,  result in a breach of, or  constitute a
default  under,  or accelerate  or permit the  acceleration  of the  performance
required  by, or  require  any  consent,  authorization  or  approval  under any
material  agreement  or other  instrument  to which Buyer is a party or by which
Buyer or its  properties  are bound;  (iii)  violate or conflict in any material
respect with any Legal Requirements or any foreign law, rule, regulation,  code,
ordinance,  material  permit or material  license;  or (iv)  constitute an event
which,  with  notice,  lapse of time or both would  result in any such  material
violation, conflict, breach or default.

         4.2.4   Approvals   and   Consents.   No  material   filing,   consent,
authorization  or approval  under any Legal  Requirement  binding  upon Buyer is
required  to be made or  obtained  by Buyer in order to execute or deliver  this
Agreement or to consummate  the  transactions  contemplated  by hereby by Buyer,
except with respect to the filings required under the HSR Act.

         4.2.5 Acquisition as Investment.  Buyer is acquiring the Class A Common
Stock for its own account as an investment  without the present  intent to sell,
transfer or otherwise distribute the Class A Common Stock to any other person or
entity.

         4.2.6  Brokerage or Finders  Fees.  All  negotiations  relating to this
Agreement and the transactions  contemplated  hereby have been conducted without
the  intervention  of any  person  or  entity  acting  on behalf of Buyer or its
Affiliates in such a manner as to give rise to a valid claim against Seller, the
Company or any  Subsidiary  for any  broker's  or  finder's  commission,  fee or
similar compensation.

         4.2.7 No Electric Utility Ownership.  Assuming Seller's  representation
in Section 4.1.17(C) is accurate,  Buyer is not (i) an "electric  utility" or an
"electric  utility holding company" or a wholly or partially owned subsidiary of
either,  within the meaning of Part 292 of the PURPA Regulations (18 C.F.R. Part
292) and FERC's decisions thereunder or (ii) otherwise engaged in the generation
or sale of electric power (other than electric  power solely from  "cogeneration
facilities" or "small power production  facilities"  (both within the meaning of
Part 292 of the PURPA Regulations or the current interpretations of FERC and the
courts of competent jurisdiction of such regulation)). At or before the Closing,
Buyer will have ratified all written  agreements between Clear Lake or Cogenron,
on the one hand, and Buyer, Seller, DRI or their respective  Affiliates,  on the
other.  Within 30 days after the  Closing  Date,  Buyer will have caused each of
Clear Lake and Cogenron to file a notice of  self-certification  ("collectively,
the "Self-Certification Notices"), the purpose of which is to reflect

                                      -18-

<PAGE>



the change in  ownership  of the  Company,  which  notices  shall  describe  the
non-utility status of Calpine.

         4.2.8  Available  Funds.  Buyer  has,  and at the  Closing  will  have,
sufficient  funds  available to it to purchase the Class A Common Stock pursuant
to this  Agreement  and to purchase the existing  long-term  project debt on the
Facilities (the "Long Term Debt") pursuant to the Assignment of Notes for a cash
purchase  price  equal  to  the  outstanding  principal  balance,  plus  accrued
interest,  as of the Closing Date, which principal and interest,  as of the date
hereof, is expected to total approximately $157,000,000.

         4.2.9 Knowledgeable Buyer. Buyer (i) is represented by competent legal,
tax and financial  counsel in connection with the  negotiation,  execution,  and
delivery of this Agreement,  (ii) together with its  Affiliates,  has sufficient
knowledge and experience in owning,  managing,  and operating  power  generating
facilities  to  enable  it  to  evaluate  the  Facilities,   the  Company,  each
Subsidiary,  EC5 and Cogen Venture,  and the businesses of each of them, and the
technical, commercial,  financial, legal, regulatory, and other risks associated
with owning the Class A Common Stock,  (iii)  acknowledges that pursuant to this
Agreement it will have,  prior to the Closing Date,  performed all due diligence
that it  desires to  perform  to enable it to  evaluate  the risks and merits of
consummating  the  transactions  contemplated  hereby,  and that in  making  the
decision  to enter  into  this  Agreement  and the  Assignment  of Notes  and to
consummate  the  transactions  contemplated  hereby and  thereby,  it has relied
solely  on  the  basis  of  its  own  independent  investigation,  analysis  and
evaluation of the Company and the  Subsidiaries  and their  properties,  assets,
business,   financial   condition   and   prospects   and   upon   the   express
representations,   warranties  and  covenants  in  this  Agreement  and  in  any
certificate delivered at the Closing, and (iv) together with its Affiliates,  is
financially  capable of owning  the Class A Common  Stock and the Long Term Debt
and performing its obligations under this Agreement, the Assignment of Notes and
the  Assignment  Agreements.  Nothing  discovered  (or  which  should  have been
discovered)  by Buyer in the course of due diligence will be considered a waiver
of or will reduce Seller's rights under Article VII; provided that, prior to the
Closing,   Buyer  has   disclosed   to  Seller  any   inaccuracy   in   Seller's
representations  and warranties or any errors in or omissions from the schedules
to this  Agreement of which Buyer has knowledge,  and further  provided that the
foregoing  does not  extend  the time  period in which a claim may be made under
Article VII or affect Seller's rights under Section 7.6. Buyer acknowledges that
neither  Seller,  its  Affiliates  nor any other  person or entity  has made any
representation  or  warranty,  express  or  implied,  as to the  Company  or the
Subsidiaries  except  for those  expressly  set forth in  Section  4.1 or in any
certificate by Seller or its Affiliates delivered at the Closing.

                                    ARTICLE V
                       ADDITIONAL AGREEMENTS AND COVENANTS

5.1     Covenants of Seller.  Seller covenants and agrees with Buyer as follows:

         5.1.1  Certain  Changes.  Except as may be  permitted  hereunder  or as
otherwise  contemplated  in this  Agreement  and except as set forth on Schedule
5.1.1,  from the date hereof through the Closing Date,  without first  obtaining
the written consent of Buyer, which consent shall

                                      -19-

<PAGE>



not be unreasonably withheld,  Seller shall, to the extent within its reasonable
control, cause the Company and the Subsidiaries not to:

         (i)  make  any  material  change  in the  conduct  of its  business  or
operations or make any change in its financial or tax  accounting  principles or
practices;

         (ii) merge into or with or consolidate with any other entity or acquire
all or substantially all of the business or assets of any corporation, person or
entity;

         (iii) make any change in their respective organizational documents;

         (iv)  purchase  any  securities  of any  corporation,  person or entity
except  for  investments  of cash and  other  funds in the  ordinary  course  of
business or issue any debt or equity securities;

         (v) mortgage, pledge or subject to any new Lien any of their respective
material  assets,  tangible or  intangible,  except  pursuant  to any  agreement
disclosed  on  Schedule  4.1.10;  or sell,  transfer  or  dispose  of all or any
material portion of their assets, except for sales, transfers or dispositions in
the ordinary course of business or other  dispositions of equipment or inventory
items that are obsolete or not of material value;

         (vi) take any action or enter into any commitment with respect to or in
contemplation of any liquidation, dissolution, recapitalization,  reorganization
or other winding up of its business or operation;

         (vii) enter into any settlement of or commence any material  pending or
threatened litigation;

         (viii)  consent to the entry of any  decree or order by a  Governmental
Entity;

         (ix)     set aside, declare or pay any dividends;

         (x) incur or guarantee any indebtedness for borrowed money in excess of
$50,000 or forgive any  indebtedness  for borrowed money or make any advances or
loans to third parties;

         (xi)     form any new subsidiaries or engage in any new businesses;

         (xii) enter into any new material  agreement or amend or terminate  any
material agreement; or

         (xiii)  provide any new (meaning not pursuant to an existing  agreement
disclosed on Schedule  4.1.10(A))  severance or other  employee  benefits to any
employee  of or  consultant  to  the  Company  or  any  Subsidiary,  except  for
extensions of existing consulting agreements on substantially the same terms.


                                      -20-

<PAGE>



From the date hereof through the Closing Date, except as permitted  hereunder or
contemplated  hereby or as  consented  to in writing by Buyer,  Seller  will not
enter into any guarantees or other support  agreements in respect of the Company
or the Subsidiaries.  With respect to those matters set forth on Schedule 5.1.1,
Seller  shall  consult,  and shall use its Best Efforts to cause the Company and
the Subsidiaries to consult,  with Buyer with respect to any  negotiations  with
third  parties  and  any  new  agreements  or  amendments  or  modifications  to
agreements  contemplated by the matters listed on Schedule 5.1.1,  and shall use
its good faith efforts to incorporate  any revisions to agreements  requested by
Buyer in such negotiations, agreements, amendments and modifications.

         5.1.2  Operation  of  Business.  From the date hereof until the Closing
Date, except as permitted hereunder or contemplated hereby or as consented to in
writing by Buyer, Seller shall use its Best Efforts to cause the Company and the
Subsidiaries to carry on their  respective  businesses in the usual and ordinary
course  except  where the  failure  to do so would not have a  Material  Adverse
Effect,  including  the  purchase  of spare  parts  for the  Facilities  and the
performance of  maintenance,  repairs and similar  activities in accordance with
the normal current schedule  therefor,  and the payment of amounts due under the
Long  Term  Debt as and when due under  the  applicable  amortization  schedule.
Seller shall not cause EOC or ECT to change the performance of their obligations
under the Clear  Lake O & M  Agreement,  the Texas City O & M  Agreement  or the
Administrative Services Agreement.

         5.1.3  Insurance.  From the date hereof until the Closing Date,  Seller
will use its Best  Efforts to cause the Company to maintain  the  Insurance  for
itself  and  the  Subsidiaries.  Buyer  recognizes  and  acknowledges  that  the
Insurance  will  terminate  upon  the  Closing  and  that  the  Company  and the
Subsidiaries  will need to obtain new  insurance.  All insured  claims or losses
arising or occurring on or before the Closing with respect to the Company or the
Subsidiaries  shall be for the account of the Company or the Subsidiaries  under
the  insurance  policies  maintained  pursuant to the  applicable  operating and
maintenance  agreements  or credit  facilities  relating  to the Long Term Debt,
regardless  of when  such  claims  or  losses  are  reported  to the  applicable
insurance  carrier;   provided  that  with  respect  to  Insurance  constituting
liability insurance,. all such claims and losses shall be reported no later than
the first anniversary of the Closing Date.

         5.1.4  Access.   Seller  will  afford  to  Buyer  and  its   authorized
representatives,  at Buyer's sole expense, risk and cost, reasonable access from
the date hereof through the Closing Date,  during normal  business hours, to its
and the  Company's  personnel,  properties,  books and  records  relating to the
Facilities, the Company, the Subsidiaries and EC5 and will furnish to Buyer such
additional financial and operating data and other information relating to any of
them as Buyer  may  reasonably  request,  to the  extent  that such  access  and
disclosure  would not violate the terms of any  agreement to which  Seller,  the
Company,  any  Subsidiary  or EC5 is bound or any Legal  Requirement;  provided,
however,  that the  confidentiality of any data or information so acquired shall
be  maintained  by  Buyer  and  its  Affiliates  and  their  representatives  in
accordance with Section 5.2.3; and further provided that all requests for access
shall be directed  to Brad  Petzold  (713)  853-1611,  or such other  persons as
Seller may  designate  from time to time.  During said period,  Seller will also
allow Buyer such access to the  documents  within its  possession or to which it
has reasonable access relating directly to Cogen JV.


                                      -21-

<PAGE>



         5.1.5 Antitrust Notification and Other Governmental Filings.  Seller or
its Affiliate  will, as promptly as  practicable  (and, in any event,  within 10
days after the execution  hereof) file with the Federal Trade Commission and the
Department of Justice the  notification  and report form required to be filed by
it for the transactions contemplated hereby (and shall request early termination
of the waiting period) and any supplemental  information which may be reasonably
requested in connection therewith pursuant to the HSR Act.

         5.1.6  Confidentiality.  After the  Closing  Date,  Seller  shall  not,
directly or indirectly,  use,  disclose or provide to any other person or entity
any information of a confidential or proprietary  nature concerning the business
or assets of the Company,  the  Subsidiaries or EC5 except (i) as is required in
governmental filings or judicial,  administrative or arbitration  proceedings or
by Legal Requirements, (ii) information that was or becomes in the public domain
without breach of any obligation of confidentiality by Seller or its Affiliates,
or (iii) as is  reasonably  necessary  to  enforce  its  rights  or  defend  its
obligations in connection with the Facilities.

         5.1.7 Public  Announcements.  Subject to applicable  securities  law or
stock exchange  requirements,  at all times until the Closing Date, Seller shall
promptly   advise,   and  obtain  the  approval   (which  may  not  be  withheld
unreasonably)  of, Buyer before  issuing,  or permitting  any of its  directors,
officers,  employees,  agents or investment bankers, or any of its Affiliates to
issue, any press release or other announcement with respect to this Agreement or
the transactions contemplated hereby; provided that no further approval shall be
required  for press  releases  or other  announcements  which are  substantially
similar to previously approved releases or announcements provided a copy of such
release or announcement is furnished promptly to Buyer.

         5.1.8  Transaction  Costs.  Seller shall bear and pay all of the costs,
fees  and  expenses  incurred  by it or on its  behalf  in  connection  with the
transactions contemplated by this Agreement.

         5.1.9 Noncompetition.  For a period of one year after the Closing Date,
neither Seller nor any of its  Affiliates  shall sell or enter into any contract
to sell and, upon request by Buyer,  shall  immediately  cease any activities or
attempts  to sell or enter into any  contract  to sell,  steam to Union  Carbide
Corporation  for use at its facility  adjacent to the Texas City  Facility or to
Hoechst Celanese  Corporation for use at its facility adjacent to the Clear Lake
Facility.

         5.1.10  Satisfaction of Closing  Conditions.  Seller shall use its Best
Efforts to cause  satisfaction of the conditions  precedent to Closing set forth
in  Sections  6.1.3,  6.1.7  through  6.1.10,  and,  subject to Section  8.1(v),
Sections 6.1.6 and 6.2.7 through 6.2.9.


                                      -22-

<PAGE>



5.2      Covenants of Buyer.  Buyer covenants and agrees with Seller as follows:

         5.2.1 Antitrust  Notification and Other Governmental Filings.  Buyer or
its Affiliate will as promptly as practicable (and, in any event, within 10 days
after the  execution  hereof)  file with the Federal  Trade  Commission  and the
Department  of  Justice  the  notification  and  report  form  required  for the
transactions  contemplated  hereby (and shall request early  termination  of the
waiting  period)  and  any  supplemental  information  which  may be  reasonably
requested in connection therewith pursuant to the HSR Act.

         5.2.2 Public  Announcements.  Subject to applicable  securities  law or
stock exchange  requirements,  at all times until the Closing Date,  Buyer shall
promptly   advise,   and  obtain  the  approval   (which  may  not  be  withheld
unreasonably) of, Seller before issuing, or permitting any of Buyer's directors,
officers,  employees, agents or investment bankers, or any of Buyer's Affiliates
to issue, any press release or other announcement with respect to this Agreement
or the transactions contemplated hereby; provided that no further approval shall
be required for press releases or other  announcements  which are  substantially
similar to previously approved releases or announcements provided a copy of such
release or announcement is furnished promptly to Seller.

         5.2.3  Confidential  Information.  In the event that this  Agreement is
terminated or, if not terminated, until the Closing Date, the confidentiality of
any data or information  received by Buyer  regarding the business and assets of
the Company, Seller and their respective Affiliates shall be maintained by Buyer
and its representatives in accordance with the  Confidentiality  Agreement dated
March 10, 1997 executed by Calpine Corporation and Seller (the  "Confidentiality
Agreement").

         5.2.4  Transaction  Costs.  Buyer  shall bear and pay all of the costs,
fees  and  expenses  incurred  by it or on its  behalf  in  connection  with the
transactions contemplated by this Agreement, including the filing fees under the
HSR Act.

         5.2.5  Satisfaction  of Closing  Conditions.  Buyer  shall use its Best
Efforts to cause  satisfaction of the conditions  precedent to Closing set forth
in Sections 6.2.3, 6.2.4, and 6.2.7 through 6.2.9.

         5.2.6 Bank Account and Line of Credit.  Buyer has heretofore  delivered
to Seller a letter from Bank of Nova Scotia (the "Bank")  stating that Buyer (i)
has deposited sufficient funds in a deposit account maintained by it at the Bank
and (ii) has  sufficient  funds  available  to be drawn under the line of credit
provided by the Bank,  to complete  the purchase of the Class A Common Stock and
Long Term Debt as  contemplated  hereby.  Buyer hereby  agrees that prior to the
termination of this Agreement as permitted hereunder,  it shall not (a) withdraw
or use funds  from such  account or (b) draw down on or use funds from such line
of credit  except to purchase  the Class A Common  Stock and the Long Term Debt,
which withdrawal or use in the aggregate would reduce the total amount available
in such  account  and under such line of credit to less than the sum of the Base
Purchase  Price and the amount of the principal and interest  outstanding  under
the Long Term Debt.  From the date hereof through the Closing,  Buyer shall not,
and shall  cause its  Affiliates  not to,  take any action  that would cause the
terms and conditions to utilizing funds under such line of credit not to be

                                      -23-

<PAGE>



satisfied.  Nothing in this Section  5.2.6 is intended to, nor shall it,  modify
Section 4.2.8 or imply that Buyer's obligations under this Agreement are subject
to financing.

         5.2.7  Certain  FERC  Matters.  At or before the  Closing,  Buyer shall
ratify all written agreements between Clear Lake and Cogenron,  on the one hand,
and Buyer, Seller, DRI or their respective  Affiliates,  on the other, and shall
furnish Seller with a valid  resolution of Buyer  evidencing such  ratification.
Within 30 days after the Closing Date, Buyer shall cause Clear Lake and Cogenron
to file the Self-Certification Notices with FERC.

5.3      Mutual Covenants.  Buyer and Seller covenant and agree as follows:

         5.3.1 Release.  Prior to the Closing,  without limiting Seller's rights
under Sections 6.2.7 through 6.2.9, and 8.1(v), Buyer and Seller shall use their
Best Efforts to have Seller and their  Affiliates  released from all obligations
under the  agreements  listed on Schedule  4.1.10(C)  (including  the agreements
listed   as  Credit   Support   Obligations   therein   (the   "Credit   Support
Obligations")). In addition, Buyer shall provide financial information and offer
to furnish  substantially  equivalent credit support obligations to the obligees
under  the  Credit  Support  Obligations  to effect  such  release  pursuant  to
agreements  that are mutually  satisfactory  to Buyer and Seller.  To the extent
that Seller and its  Affiliates  are not released from all of the Credit Support
Obligations pursuant to agreements reasonably satisfactory to Seller in form and
substance,  Buyer shall indemnify Seller and its Affiliates  pursuant to Section
7.2(B) with respect thereto.

         5.3.2 Tax Returns. Seller, in cooperation with the Company, shall cause
to be prepared and timely filed  (taking into account any  extensions  permitted
hereunder)  each income Tax Return of the Company that includes a taxable period
ending on or before the  Closing  Date which is  required  to be filed after the
Closing Date, and pursuant to Section  9.4(B),  Buyer shall provide  records and
assistance  to enable  Seller to make such  filings.  Seller  shall not cause or
permit  the  Company  to extend the  filing  date for such Tax  Returns  without
Buyer's prior written consent.

         5.3.3  Administrative  Services  Agreement.  Seller  shall cause ECT to
agree (i) to offer to the Company to amend the Administrative Services Agreement
to provide that it will  terminate on a date  designated by the Company which is
not more than 90 days after the Closing Date,  (ii) to continue to perform ECT's
duties and obligations under the  Administrative  Services Agreement through and
including such designated  termination date and (ii) upon such termination date,
to deliver and turn over to the  Company  non-proprietary  software,  electronic
data and books and records relating primarily to the Company or the Subsidiaries
and any other items as are mutually agreed upon by ECT and the Company.

         5.3.4    Employment Matters.

         (A) Facilities  Employees.  Schedule 5.3.4(A) (the "Employee Schedule")
to be attached to this  Agreement  will  contain the names of employees of Enron
International  Payroll,  Inc.  ("EIPI")  who are  engaged in the  operation  and
maintenance  of the  Facilities  (the  "Facilities  Employees"),  their  current
salaries  and work  location.  Seller  shall  deliver the  Employee  Schedule of
Facilities Employees on a confidential basis to the Manager,  Human Resources of
Buyer, no more than five

                                      -24-

<PAGE>



business days after this Agreement is executed.  The Employee Schedule shall set
forth  substantially the same number of employees,  types and numbers of jobs at
each  Facility  and at the  Company,  current  salary  amounts and years of past
service credit as the information  previously provided to Buyer by Seller or its
Affiliates.  The  Employee  Schedule  shall show the name,  job  position,  work
location,  current  salary  and  years of past  service  credit  for each of the
Facilities Employees.  In addition,  Seller will provide Buyer on a confidential
basis  relevant  written  information  in  Seller's  possession  regarding  each
individual's work  qualifications,  training history,  and prior jobs held while
employed  by any  affiliate  of Seller.  The  average  severance  cost for these
Facilities  Employees is $25,272 (the "Average  Severance Cost").  Buyer, in its
sole  discretion,  may  make  offers  of  employment  to any  of the  Facilities
Employees. Buyer understands that offers of employment which are not at least at
the current  salary and at the same location of any  Facilities  Employee may be
declined by such employee and such  employee,  if  terminated by EIPI,  would be
entitled to a severance  benefit  under the Enron Corp.  Severance Pay Plan (the
"Severance Plan"), a copy of which Seller has provided to Buyer. With respect to
Facilities  Employees  who become  entitled  to a  severance  benefit  under the
Severance  Plan as a result of Buyer's not having made offers of  employment  to
such employees at their current salaries and at the same location,  Seller shall
be financially  responsible for the first nine Facilities Employees who are paid
a severance benefit under the Severance Plan, and Buyer shall promptly,  without
delay, upon receipt of written  notification by Seller,  pay to Seller an amount
equal to the number of such  Facilities  Employees in excess of nine, who within
90 days after the Closing, are paid a severance benefit under the Severance Plan
multiplied by the Average  Severance  Cost. If any such  Facilities  Employee is
terminated by Seller and receives severance under the Severance Plan, and within
12 months after the  termination  of the  Facilities  Employee by Seller,  Buyer
employs such  Facilities  Employee,  then Buyer shall  promptly pay to Seller an
amount equal to all or a portion of the severance benefit,  if any, paid to such
Facilities  Employee by either Seller or EIPI in connection with such employee's
termination of employment with either Seller or EIPI,  determined by multiplying
the amount of such  severance  benefit by a fraction,  the numerator of which is
the number 12 reduced by the number of full  months  that have  passed  from the
Closing Date to the employment  date, and the denominator of which is the number
12.

         (B) COBRA  Continuation  Coverage.  Seller shall be responsible for the
health care claims of any Facilities Employees that are not employed by Buyer as
of the  Closing  Date who  receive  continuation  of health  care  coverage,  as
required by the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA")
under medical plans by which they are covered.  Buyer shall be  responsible  for
providing health care continuation coverage, if any, as required by COBRA to any
of the Facilities Employees who are employed by Buyer as of or subsequent to the
Closing Date and who cease employment with Buyer for any reason thereafter.

         (C)  Participation  In Buyer's Plans.  Subsequent to the Closing,  upon
employment  with  Buyer,  the  Facilities  Employees  employed by Buyer shall be
eligible for  participation in all employee benefit plans (within the meaning of
Section  3(3) of ERISA)  for which  similarly  situated  employees  of Buyer are
eligible  ("Buyer's  Plans").  Under Buyer's  Plans,  the  Facilities  Employees
employed  by Buyer will be given  credit for Past  Service  (defined  below) for
purposes of determining  (i) eligibility  for  participation  in the retirement,
short or long term disability,  severance and vacation plans (including, without
limitation, eligibility for early retirement), and (ii) the duration and amount,
if any, of short or long term disability and severance benefits.  "Past Service"
means (i) service as

                                      -25-

<PAGE>



an employee of EIPI or any of its  affiliates and (ii) service as an employee of
any other entity,  but only to the extent that such service is recognized  under
the  applicable  and similar plan of EIPI or its  Affiliates,  and is continuous
through the Closing Date.

         (D)  No  Medical  Preexisting   Condition.   No  preexisting  condition
limitations shall be applicable to Facilities  Employees employed by Buyer under
any  employee  benefit  plan  of  Buyer  provided  that,  with  respect  to each
Facilities  Employee and his or her other covered  dependents,  such  Facilities
Employee and each covered  dependent  enrolls in such plan within 30 days of the
Facilities Employee commencing  employment with Buyer; and further provided that
such  person has been  covered  under a medical  plan for the  six-month  period
preceding  the  Closing.   Additionally,  any  Facilities  Employee  or  covered
dependent  expenses applied toward  deductibles in the year in which the Closing
occurs and any  out-of-pocket  limitations under EIPI's medical and dental plans
in the year in which  the  Closing  occurs  shall be  recognized  under  Buyer's
medical and dental  plans and applied  respectively  toward any  deductibles  or
out-of-pocket limits thereunder in such year.

         (E)  Responsibility  for Claims.  Employee  benefit claims for expenses
incurred  by,  or for  services  provided  to,  Facilities  Employees  or  their
dependents  which occur prior to the date of the Closing  shall be the financial
obligation of Seller.  Employee benefit claims for expenses  incurred by, or for
services  provided to, Facilities  Employees  employed by Buyer or their covered
dependents  which  occur on or after the  Closing  Date shall be  covered  under
Buyer's  Plans.  The  amount and type of  benefits  payable in any case shall be
determined in accordance with the terms of the applicable employee benefit plan.

         (F)  Severance  Benefits.  Buyer shall cause the  Facilities  Employees
employed by Buyer to be eligible for  severance  benefits,  to be paid to such a
Facilities Employee if within one year after the Closing the Facilities Employee
either  has a  reduction  in base  pay and  elects  within  30 days  thereof  to
terminate  employment  or is  terminated  by  Buyer  for  a  reason  other  than
termination  for cause, in the sum of (i) two weeks of base pay for each year of
Past Service and additional  service,  or portion thereof,  credited with Buyer,
and (ii)  two  weeks of base pay for  each  Ten  Thousand  Dollars,  or  portion
thereof,  of annualized base pay, up to a maximum total severance  payment equal
to 52 weeks of base pay. "Termination for cause" as used in this paragraph shall
mean termination for such reasons as Buyer may reasonably determine  constitutes
cause  which is  serious  enough  to result in a  legitimate  business  need for
termination of employment instead of warning,  probation or counseling.  Failure
to meet  established  performance  expectations  shall  not be such a cause  for
termination  unless  the  Facilities  Employee  has  been  counseled  about  the
unacceptable  performance and has had an opportunity to improve  performance for
at least 30 days.


                                   ARTICLE VI
                              CONDITIONS TO CLOSING

6.1  Buyer's  Obligation  to  Close.  Buyer's  obligation  to close  under  this
Agreement is subject to the  fulfillment,  on the Closing  Date,  of each of the
following  conditions  (except to the extent  that  Buyer  shall have  hereafter
agreed in writing to waive one or more of such conditions):


                                      -26-

<PAGE>



         6.1.1  Compliance  with  Agreement.  Seller  shall have  performed  and
complied in all material respects with all covenants  required by this Agreement
to be performed or complied with by it on or prior to the Closing.

         6.1.2   Representations   and  Warranties.   The   representations  and
warranties of Seller  contained in this  Agreement  shall be true and correct in
all material respects at and as of the Closing.

         6.1.3  Certificate.   Seller  shall  have  delivered  to  Buyer  (i)  a
certificate,  dated the Closing Date, executed on its behalf by its president or
a  vice  president,  certifying  true  and  correct  copies  of  each  contract,
agreement,  commitment,  instrument  or other  document  described  on Schedules
4.1.10(A),  4.1.10(B), and 4.1.10(C), and (ii) a certificate,  dated the Closing
Date, executed on its behalf by its president or a vice president, to the effect
that the conditions in Sections  6.1.1 and 6.1.2 are  satisfied,  except for any
exceptions noted in such  certificate.  If any of Buyer's  conditions to Closing
have not been satisfied,  but Buyer nonetheless  waives the satisfaction of such
condition,  Buyer shall not be entitled to any decrease in the Purchase Price or
any recourse, including indemnification under Section 7.1, against Seller or its
Affiliates with respect to the matter so waived.

         6.1.4 Filings.  Any  applicable  waiting period under the HSR Act shall
have expired.

         6.1.5  Litigation.  (i) There  shall not be pending any  litigation  or
proceeding  (filed by a person or entity other than Buyer or its  Affiliates) to
restrain or prohibit  the  transactions  contemplated  by this  Agreement  or to
obtain  material  damages  or  other  material  relief  in  connection  with the
consummation of such transactions.

         6.1.6 Stock  Certificates;  Assignment  Agreements.  Seller  shall have
delivered  to Buyer (i) one or more stock  certificates  evidencing  the Class A
Common Stock,  with stock powers duly executed in blank, and (ii) the Assignment
Agreements,  duly executed by Seller and its  Affiliates (to the extent they are
parties thereto) and all necessary consents thereto shall have been obtained.

         6.1.7  Opinion.  Seller  shall  have  delivered  to  Buyer  one or more
opinions  of  internal  counsel of Seller or its  Affiliates  (i)  covering  due
authorization,   execution  and  delivery  by  Seller  and  its  Affiliates,  as
applicable,    of   this   Agreement,    any   separate    agreements   executed
contemporaneously  herewith  between  Seller or its  Affiliates and Buyer or its
Affiliates  (including  the  Guaranty  by Enron Corp.  of  Seller's  obligations
hereunder  in favor of  Buyer)  and the  Assignment  Agreements  and (ii) to the
effect that this  Agreement and such other  agreements  are valid and binding on
Seller or its  Affiliates,  as  applicable  (but  expressing  no  opinion  as to
enforceability).

         6.1.8 Secretary's  Certificate.  Seller shall have delivered to Buyer a
certificate  dated the Closing  Date  executed by the  secretary or an assistant
secretary  of Seller,  certifying  that the  resolutions  of Seller  authorizing
entering into this Agreement and in full force and effect.

         6.1.9  Resignations.  Seller  shall  have  delivered  to Buyer the duly
executed  resignations  of all  Class A  directors  and the  officers  listed on
Schedule 6.1.9.

                                                      -27-

<PAGE>



         6.1.10 Scheduled Payments. All scheduled payments on Long Term Debt due
on or before the Effective Date pursuant to the applicable amortization schedule
therefor shall have been paid.

6.2 Seller's  Obligation to Close.  The obligation of Seller to close under this
Agreement is subject to the  fulfillment,  on the Closing  Date,  of each of the
following  conditions  (except to the extent  that Seller  shall have  hereafter
agreed in writing to waive one or more of such conditions):

         6.2.1  Compliance  with  Agreement.  Buyer  shall  have  performed  and
complied in all material respects with all covenants to be performed or complied
with by Buyer on or prior to the Closing.

         6.2.2   Representations   and  Warranties.   The   representations  and
warranties of Buyer contained in this Agreement shall be true and correct in all
material respects at and as of the Closing

         6.2.3 Certificate.  Buyer shall have delivered to Seller a certificate,
dated the  Closing  Date,  executed  on its  behalf by its  president  or a vice
president,  to the effect that the  conditions in Sections  6.2.1 and 6.2.2 have
been satisfied,  except for any exceptions noted in such certificate.  If any of
Seller's  conditions to Closing have not been satisfied,  but Seller nonetheless
waives the  satisfaction of such condition,  Seller shall not be entitled to any
increase in the Purchase Price or any recourse,  including indemnification under
Section 7.2, against Buyer with respect to the matters so waived.

         6.2.4  Opinion.  Buyer  shall  have  delivered  to Seller an opinion of
internal counsel (i) covering due authorization, execution and delivery by Buyer
and its Affiliates,  as applicable,  of this Agreement,  any separate agreements
executed  contemporaneously  herewith between Seller or its Affiliates and Buyer
or its  Affiliates  (including  the Guaranty by Calpine  Corporation  of Buyer's
obligations  hereunder in favor of Seller),  and the  Assignment  Agreements and
(ii) to the effect that this  Agreement and such other  agreements are valid and
binding on Buyer or its Affiliates,  as applicable (but expressing no opinion as
to enforceability).

         6.2.5 Filings.  Any  applicable  waiting period under the HSR Act shall
have expired.

         6.2.6  Litigation.  There  shall  not  be  pending  any  litigation  or
proceeding  (filed by a person or entity other than Seller or its Affiliates) to
restrain or prohibit  the  transactions  contemplated  by this  Agreement  or to
obtain  material  damages  or  other  material  relief  in  connection  with the
consummation of such transactions.

         6.2.7 Assignment Agreements. Buyer shall have executed and delivered to
Seller the Assignment Agreements,  duly executed by Buyer and its Affiliates (to
the extent they are parties  thereto) and all necessary  consents  thereto shall
have been obtained.

         6.2.8 Long Term Debt.  Buyer shall have  purchased  the Long Term Debt,
including the  outstanding  principal and interest  thereunder,  pursuant to the
Assignment of Notes and shall have otherwise  obtained the release of Seller and
its Affiliates from liability under the Credit Support  Obligations  (other than
the Surety Agreement) pursuant to documents and agreements in form and substance
reasonably  acceptable to Seller or, with respect to Credit Support  Obligations
other than

                                      -28-

<PAGE>



the UCC Guaranty Agreement, Buyer shall indemnify Seller and its Affiliates with
respect thereto pursuant to Section 7.2(B).

         6.2.9 Release.  Seller and its Affiliates shall have obtained releases,
in form and substance  satisfactory to Seller, of all of its and its Affiliates'
obligations  under  the  Credit  Support  Obligations,  other  than  the  Surety
Agreement.

                                   ARTICLE VII
                                 INDEMNIFICATION


7.1 Indemnification of Buyer. (A) After the Closing, subject to Sections 7.1(B),
7.5 and 7.6, Seller shall indemnify Buyer against, and hold Buyer harmless from,
any loss,  damage,  cost,  liability or expense  (including  reasonable costs of
defense and  investigations,  settlements,  and reasonable  attorneys'  fees) or
penalties or fines  (collectively  "Losses") Buyer incurs or becomes subject to,
to the extent  arising out of or resulting  from any  inaccuracy in or breach of
any of the (i)  representations  and warranties or (ii) covenants made by Seller
herein  (any such Loss being  referred to herein as "Buyer  Indemnified  Loss");
provided  that Seller shall have no liability  under  Section  7.1(A) unless the
aggregate of all Buyer  Indemnified  Losses for which Seller would, but for this
proviso,  be liable exceeds on a cumulative basis  $1,000,000,  and then only to
the extent of any such excess;  and further  provided that Seller shall not have
any  liability  under  Section  7.1(A)  for any  individual  item where the Loss
relating to such item is less than $25,000;  and further  provided  that, in the
case of Section  4.1.16,  in no event shall the  aggregate  liability  of Seller
exceed $4,000,000;  and further provided that the aggregate  liability of Seller
under  this  Section  7.1(A)  for  Buyer  Indemnified  Losses  (excluding  Buyer
Indemnified  Losses  resulting  from a breach of Sections  4.1.2 or 4.1.5(B) and
excluding  purchase price adjustments and matters covered by separate  agreement
executed  concurrently  herewith  which  state that they are not subject to such
limitations)  shall in no event exceed  $10,000,000;  and further  provided that
Seller's  liability with respect to a breach of the  representations  in Section
4.1.2 and 4.1.5(B)  shall not exceed the Purchase  Price;  and further  provided
that the aggregate  liability of Seller under this  Agreement  (including  Buyer
Indemnified Losses resulting from breach of Section 4.1.2 or 4.1.5(B)) and under
any  certificate  to be delivered by Seller or its Affiliates at the Closing and
under any agreement  delivered in connection  herewith  shall in no event exceed
the Purchase Price;  and further provided that in no event shall Seller have any
obligation to indemnify  Buyer with respect to any Losses arising out of default
by the  Company or the  Subsidiaries  under the credit  agreements  or  security
agreements  with  respect  to the Long Term Debt (x)  unless  such  default is a
default with respect to (i) the payment of  principal,  interest,  fees or other
expenses   required  to  be  paid  under  such  credit  agreements  or  security
agreements,  (ii)  any  requirements  of  such  credit  agreements  or  security
agreements  to  deposit,  maintain,  return or  restore  funds in or to  project
accounts or reserve accounts,  or (iii) the use,  application or distribution of
funds,  including payments to Seller,  Dominion and their respective Affiliates,
or (y) unless Seller had knowledge of such default at or prior to the Closing.

         (B) The  representations  and  warranties in this  Agreement and in any
other  document or certificate  to be delivered at the Closing  pursuant  hereto
shall  survive the  Closing  solely for  purposes of this  Article VII and shall
terminate 540 days after the Closing Date, except for (i) Sections 4.1.2,

                                      -29-

<PAGE>



4.1.5(B),  and 4.2.2,  which,  solely for purposes of this  Article  VII,  shall
survive  indefinitely,  (ii)  Section  4.1.14,  which shall  terminate  upon the
expiration of the statute of  limitations  applicable to tax matters,  and (iii)
Section  4.1.16,  which shall  terminate  1,095 days after the Closing  Date. No
action can be brought  with  respect  to any  breach of any  representation  and
warranty  under  this  Agreement  or any other  document  or  certificate  to be
delivered  at the Closing  pursuant  hereto  unless a Claim  Notice or Indemnity
Notice specifying the breach of the representation or warranty forming the basis
of such claim has been  delivered  to the party  alleged to have  breached  such
representation or warranty prior to the termination date of such  representation
or warranty as described in this Section  7.1(B).  Any claim for  indemnity  for
breach of covenant herein that pursuant to its terms is to be performed prior to
the Closing shall be effective  only as to matters with respect to which a Claim
Notice has been  delivered  pursuant  hereto  within 180 days after the  Closing
Date. The limited rights  provided to Buyer and Seller  pursuant to this Article
VII and Article VIII shall be the sole remedy for any inaccuracy in or breach of
any  representations,  warranties or covenants contained in this Agreement or in
any document or certificate to be delivered at the Closing. Except to the extent
expressly set forth in Section 4.1 or in any agreement or certificate  delivered
by Seller  or its  Affiliates  at the  Closing,  neither  Seller,  Company,  any
Subsidiary nor any of their respective  Affiliates makes any  representations or
warranties   whatsoever   and  Seller   hereby   disclaims   all  liability  and
responsibility for any other representation,  warranty, statement or information
made or communicated (orally or in writing) to Buyer (including, but not limited
to, any  information  contained in the data room  maintained  by or on behalf of
Seller or any  opinions,  information  or advice which may have been provided to
Buyer by any officer,  stockholder,  director,  employee,  agent,  consultant or
representative  of Seller,  Company,  any Subsidiary or any of their  respective
Affiliates).  Without  limiting  the  generality  of the  foregoing,  except  as
expressly  set forth in Section 4.1 or any  certificates  delivered by Seller or
its Affiliates at the Closing,  neither Seller,  Company, any Subsidiary nor any
of their respective  Affiliates makes any  representation  or warranty as to (i)
title to any of the properties or assets of Company or any Subsidiary,  (ii) the
Facilities,  or (iii) the  prospects  of the  business  of the  Company  and the
Subsidiaries.  SELLER  EXPRESSLY  DISCLAIMS  AND  NEGATES ANY IMPLIED OR EXPRESS
WARRANTY  OF  MERCHANTABILITY,   OR  FITNESS  FOR  PARTICULAR  PURPOSE,  AND  OF
CONFORMITY  TO SAMPLES AND  MODELS.  To the fullest  extent  permitted  by Legal
Requirements,  Buyer and Seller hereby waive any and all rights they may have at
law or in equity  except as set forth in this  Article  VII with  respect to any
inaccuracy in or breach of any  representation  or warranty and covenant in this
Agreement or in any  certificates to be delivered by Seller or its Affiliates at
the Closing.

7.2  Indemnification  and Release of Seller.  (A) After the Closing,  subject to
Section 7.5, Buyer shall  indemnify  Seller  against,  and hold Seller  harmless
from, any Losses Seller incurs or becomes  subject to, to the extent arising out
of  or  resulting   from  any  inaccuracy  in  or  breach  of  any  of  the  (i)
representations  and warranties or (ii) covenants made by Buyer herein (any such
Loss being  referred to herein as a "Seller  Indemnified  Loss");  provided that
Buyer shall have no liability  under Section  7.2(A) unless the aggregate of all
Seller  Indemnified Losses (excluding Seller Indemnified Losses resulting from a
breach of Section  4.2.2,  4.2.8 or 5.2.6) for which Buyer  would,  but for this
proviso,  be liable exceeds on a cumulative basis  $1,000,000,  and then only to
the extent of any such excess;  and further  provided  that Buyer shall not have
any  liability  under  Section  7.2(A)  for any  individual  item where the Loss
relating to such item is less than $25,000; and further provided that

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<PAGE>



the  aggregate  liability  of  Seller  under  this  Section  7.2(A)  for  Seller
Indemnified  Losses (excluding Seller Indemnified Losses resulting from a breach
of Section  4.2.2,  4.2.8 or 5.2.6)  shall in no event exceed  $10,000,000;  and
further  provided  that the  aggregate  liability of Buyer under this  Agreement
(including Seller  Indemnified Losses resulting from breach of Section 4.2.2) or
in any certificate delivered by Buyer or its Affiliates at the Closing) shall in
no  event  exceed  the  sum of the  Purchase  Price  and the  total  outstanding
principal and interest under the Long Term Debt.

         (B) After the Closing,  Buyer shall  indemnify and hold harmless Seller
and its  Affiliates  from any Losses  arising out of  obligations  to be paid or
performed  from and after the  Closing  under the  Credit  Support  Obligations,
except for Credit Support  Obligations  with respect to which Seller has advised
Buyer in writing at or before the Closing that any release received with respect
thereto is satisfactory in form and substance to Seller.

         (C) Except as expressly set forth in Section 4.2 or in any  certificate
to be delivered by Buyer or its Affiliates at the Closing, neither Buyer nor any
of its Affiliates makes any representations or warranties whatsoever,  and Buyer
hereby disclaims all liability and responsibility for any other  representation,
warranty,  statement or information made or communicated  (orally or in writing)
to  Seller  and  its  Affiliates.  To the  fullest  extent  permitted  by  Legal
Requirements, Seller and its Affiliates hereby waive any and all rights they may
have at law or in equity except as set forth in this Article VII with respect to
any inaccuracy in or breach of any representation,  warranty or covenant in this
Agreement or in any  certificate  to be delivered by Buyer or its  Affiliates at
the Closing.

7.3  Applicability.  SUBJECT TO SECTIONS  7.5 AND 7.6,  THE  PROVISIONS  OF THIS
ARTICLE  VII  SHALL  APPLY   NOTWITHSTANDING   THE  SOLE,  JOINT  OR  CONCURRENT
NEGLIGENCE,  STRICT  LIABILITY OR OTHER FAULT OF THE INDEMNIFIED  PARTY. IF BOTH
THE INDEMNIFIED  PARTY AND THE INDEMNIFYING  PARTY ARE ADJUDICATED  NEGLIGENT OR
OTHERWISE AT FAULT OR STRICTLY LIABLE WITHOUT FAULT, THE CONTRACTUAL OBLIGATIONS
OF INDEMNIFICATION UNDER THIS ARTICLE VII SHALL, SUBJECT TO SECTION 7.5 AND 7.6,
CONTINUE,  BUT THE INDEMNIFYING PARTY SHALL INDEMNIFY THE INDEMNIFIED PARTY ONLY
FOR THE PERCENTAGE OF RESPONSIBILITY  FOR THE DAMAGE OR INJURIES  ADJUDICATED TO
BE ATTRIBUTABLE TO THE INDEMNIFYING PARTY.

         7.4 Indemnification  Procedures.  All claims for indemnification  under
this Agreement shall be asserted and resolved as follows:

         (A)  A  party  claiming   indemnification   under  this  Agreement  (an
"Indemnified  Party") with respect to any  third-party  claim or claims asserted
against the  Indemnified  Party  ("Third Party Claim") that could give rise to a
right of  indemnification  under this  Agreement  shall  promptly (i) notify the
party from whom  indemnification  is sought  (the  "Indemnifying  Party") of the
Third Party Claim and (ii) transmit to the  Indemnifying  Party a written notice
("Claim Notice")  describing in reasonable  detail the nature of the Third Party
Claim,  a copy of all papers  served  with  respect to such claim (if any),  the
Indemnified  Party's best estimate of the amount of damages  attributable to the
Third  Party  Claim  and  the  basis  of the  Indemnified  Party's  request  for
indemnification under this

                                      -31-

<PAGE>



Agreement. Subject to Section 7.1(B), failure to provide such Claim Notice shall
not affect the right of the Indemnified Party's indemnification hereunder except
to the extent the Indemnifying Party is prejudiced thereby. Within 30 days after
receipt of any Claim Notice (the  "Election  Period"),  the  Indemnifying  Party
shall notify the Indemnified  Party (x) whether the Indemnifying  Party disputes
its  potential  liability to the  Indemnified  Party under this Article VII with
respect to such Third Party Claim and (y) whether the Indemnifying Party desires
to defend the Indemnified Party against such Third Party Claim; provided that if
the  Indemnifying  Party  fails to so notify the  Indemnified  Party  during the
Election  Period,  the  Indemnifying  Party  shall be deemed to have  elected to
dispute such liability.

         (B) If the Indemnifying Party notifies the Indemnified Party within the
Election  Period that the  Indemnifying  Party does not  dispute  its  potential
liability  to the  Indemnified  Party  under  this  Article  VII  and  that  the
Indemnifying  Party elects to assume the defense of the Third Party Claim,  then
the  Indemnifying  Party  shall have the right to  defend,  at its sole cost and
expense,  such  Third  Party  Claim  by  all  appropriate   proceedings,   which
proceedings shall be prosecuted  diligently by the Indemnifying Party to a final
conclusion or settled at the discretion of the Indemnifying  Party in accordance
with this Section 7.4(B). The Indemnifying Party shall have full control of such
defense  and  proceedings,  including  any  compromise  or  settlement  thereof;
provided  that  counsel  selected  by the  Indemnifying  Party  to  defend  such
proceedings shall be reasonably acceptable to the Indemnified Party; and further
provided  that the  Indemnifying  Party  shall  not  enter  into any  settlement
agreement providing for (i) a finding of responsibility or liability on the part
of the Indemnified  Party,  (ii) any material  sanction or material  restriction
upon the conduct of any business, (iii) an affirmative obligation on the part of
the  Indemnified  Party,  other than an  obligation  to pay money  which will be
discharged  in full by the  Indemnifying  Party,  or (iv) any  amendment  to any
contract, agreement, instrument or other document binding on Buyer, the Company,
either Subsidiary,  EC5, or their respective  Affiliates;  in each case, without
the  Indemnified  Party's  consent,  which  consent  shall  not be  unreasonably
withheld.  The  Indemnified  Party is  hereby  authorized,  at the sole cost and
expense of the  Indemnifying  Party (but only if pursuant to Section  7.4(D) the
Indemnified Party is actually entitled to indemnification  hereunder),  to file,
during the Election  Period,  any motion,  answer or other  pleadings  which the
Indemnified  Party shall deem  necessary or appropriate to protect its interests
or those of the Indemnifying Party and not prejudicial to the Indemnifying Party
(it being  understood  and agreed  that if an  Indemnified  Party takes any such
action,  the Indemnifying  Party shall be relieved of its obligations  hereunder
with respect to such Third Party Claim to the extent that such action prejudiced
the Indemnifying Party). If requested by the Indemnifying Party, the Indemnified
Party  agrees,  at the sole  cost and  expense  of the  Indemnifying  Party,  to
cooperate  with the  Indemnifying  Party and its counsel in contesting any Third
Party Claim which the Indemnifying Party elects to contest, including the making
of any related  counterclaim  against the person or entity  asserting  the Third
Party Claim or any cross-complaint against any person or entity. The Indemnified
Party may  participate  in, but not control,  any defense or  settlement  or any
Third Party Claim controlled by the Indemnifying  Party pursuant to this Section
7.4,  and the  Indemnified  Party  shall  bear its own costs and  expenses  with
respect to such participation.

         (C) If the  Indemnifying  Party fails to notify the  Indemnified  Party
within the  Election  Period that the  Indemnifying  Party  elects to defend the
Indemnified Party pursuant to Section 7.4(B),

                                      -32-

<PAGE>



or if the Indemnifying  Party elects to defend the Indemnified Party pursuant to
Section  7.4(B) but fails to  diligently  prosecute  or settle  the Third  Party
Claim,  then the Indemnified  Party shall have the right to defend,  at the sole
cost and  expense of the  Indemnifying  Party (but only if  pursuant  to Section
7.4(D) the Indemnified Party is actually entitled to indemnification hereunder),
the Third Party Claim by all appropriate proceedings, which proceedings shall be
promptly  and  vigorously  prosecuted  by  the  Indemnified  Party  to  a  final
conclusion  or settled.  The  Indemnified  Party shall have full control of such
defense and proceedings;  provided,  however, that the Indemnified Party may not
enter  into,  without  the  Indemnifying  Party's  consent,  which  shall not be
unreasonably  withheld,  any compromise or settlement of such Third Party Claim.
The  Indemnifying  Party may  participate  in, but not  control,  any defense or
settlement  controlled by the Indemnified Party pursuant to this Section 7.4(C),
and the Indemnifying Party shall bear its own costs and expenses with respect to
such participation.

         (D) If the  Indemnifying  Party  elects  not to (or is  deemed  to have
elected not to) assume the defense of a Third Party  Claim,  or elects to assume
the defense of a Third Party Claim,  but  reserves the right to dispute  whether
such claim is an indemnifiable loss under this Article VII, the determination of
whether the Indemnified Party is entitled to indemnification  hereunder shall be
resolved by litigation in an appropriate court of competent jurisdiction.

         (E) In the event any Indemnified  Party should have a claim against any
Indemnifying  Party  hereunder  which does not involve a Third Party Claim,  the
Indemnified  Party shall promptly  transmit to the Indemnifying  Party a written
notice (the "Indemnity  Notice")  describing in reasonable  detail the nature of
the  claim,  the  Indemnified  Party's  best  estimate  of the amount of damages
attributable to such claim and the basis of the Indemnified  Party's request for
indemnification under this Agreement.  If the Indemnifying Party does not notify
the  Indemnified  Party within 30 days from its receipt of the Indemnity  Notice
that the Indemnifying Party disputes such claim, the Indemnifying Party shall be
deemed to have disputed such claim. If the  Indemnifying  Party has disputed (or
is deemed to have  disputed)  such  claim,  such  dispute  shall be  resolved by
litigation in an appropriate court of competent jurisdiction.

         (F)  Payments  of all  amounts  owing by the  Indemnifying  Party  with
respect to a Third  Party Claim shall be made within 30 days after the latest of
(i) the  settlement of the Third Party Claim,  (ii) the expiration of the period
for  appeal of a final  adjudication  of such  Third  Party  Claim and (iii) the
expiration of the period for appeal of a final  adjudication of the Indemnifying
Party's liability to the Indemnified Party under this Agreement. Payments of all
amounts owing by the Indemnifying  Party as described in Section 7.3(E) shall be
made within 30 days after the earlier of the expiration of the period for appeal
of a final  adjudication  or agreement  between the  Indemnifying  Party and the
Indemnified  Party as to the Indemnifying  Party's  liability to the Indemnified
Party under this Agreement.

7.5  Limitation  on  Liabilities.  (A) IN NO  EVENT  SHALL  THE  INDEMNIFICATION
OBLIGATIONS UNDER THIS AGREEMENT  (INCLUDING UNDER ARTICLE VII AND ARTICLE VIII)
OR THE  TERM  "LOSSES"  COVER OR  INCLUDE  CONSEQUENTIAL,  INCIDENTAL,  SPECIAL,
INDIRECT,  OR PUNITIVE DAMAGES OR LOST PROFITS  SUFFERED BY THE COMPANY,  BUYER,
SELLER OR SELLER'S AFFILIATES, WHETHER

                                      -33-

<PAGE>



BASED ON STATUTE, CONTRACT, TORT OR OTHERWISE, AND WHETHER OR NOT
ARISING FROM THE INDEMNIFYING PARTY'S SOLE, JOINT OR CONCURRENT
NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT.

         (B)  Notwithstanding   anything  to  the  contrary  contained  in  this
Agreement, (i) no amounts of indemnity shall be payable as a result of any claim
in  respect  of a Loss under  Articles  VII or VIII to the  extent  that (1) the
Indemnified Party failed to promptly notify the Indemnifying Party of such claim
and the Indemnifying  Party's liability with respect to such claim was adversely
affected  by  such  failure,  or (2)  the  Indemnified  Party  had a  reasonable
opportunity,  but failed,  in good faith to  mitigate  the Loss,  including  the
failure to use Best  Efforts to recover  under a policy of  insurance or under a
contractual right of set-off or indemnity,  (ii) all indemnifiable  Losses under
Articles VII or VIII shall be net of insurance proceeds recovered or recoverable
by the Indemnified  Party and net of tax benefits to the  Indemnified  Party and
its Affiliates,  (iii) in no event shall Seller be responsible for more than 50%
of the amount of Loss suffered or incurred in whole or in part by the Company or
the Subsidiaries (as opposed to a Loss suffered or incurred solely by Buyer; for
example,  a breach of Section  4.1.5(B),  and (iv) the amounts of indemnity  and
Losses  described  in this  Section  7.5  shall in all cases be  subject  to the
restrictions  in Section 7.1, and the provisions of this Section 7.5 shall in no
event expand the  liability of Seller under Section 7.1. The  Indemnified  Party
hereby  waives (or will  cause to be waived)  any  subrogation  rights  that its
insurers may have with respect to any indemnifiable Losses.

7.6  Notification  by Seller of Certain  Matters.  Seller may,  at the  Closing,
notify  Buyer in one or more of the  certificates  to be  delivered  pursuant to
Section 6.1.3, in reasonable detail of any  representation or warranty of Seller
that was not  true and  correct  as of the date of this  Agreement  or as of the
Closing or of any  covenant of Seller that has not been  performed  and complied
with and, if Buyer shall  nevertheless  close under this Agreement,  none of the
matters set forth in such certificate  shall be deemed to be an inaccuracy in or
breach of any of the  representations  and  warranties  or  covenants  of Seller
herein for purposes of, and Buyer shall not be entitled to be  indemnified as to
any of such matters pursuant to, this Article VII.

                                  ARTICLE VIII
                               TERMINATION RIGHTS


8.1  Termination.  This  Agreement  may be  terminated  at any time prior to the
Closing Date as follows, and in no other manner:

         (i) by mutual consent of Buyer and Seller;

         (ii) by notice from Seller to Buyer, if the Closing Date shall not have
occurred on or before May 15, 1997;

         (iii) by notice  from Buyer to Seller,  if the  Closing  Date shall not
have occurred on or before May 15, 1997;


                                      -34-

<PAGE>



         (iv)  by  either  party  by  notice  to  the  other,  if  (a)  a  final
non-appealable  judgment  has  been  entered  against  such  party or any of its
Affiliates  restraining,  prohibiting  or  declaring  illegal  the  transactions
contemplated  hereby or (b) the  Company or any of the  Subsidiaries  shall have
declared  bankruptcy or been  involuntarily put into bankruptcy or receivership;
or

         (v)  notwithstanding  Section  5.1.10  or any other  provision  of this
Agreement,  by notice from Seller to Buyer,  if at any time prior to the Closing
Seller reasonably believes, in its sole discretion,  that the approvals required
(in Seller's  judgment) to enter into this  Agreement or the Assignment of Notes
or to consummate  the  transactions  contemplated  hereby or thereby in a manner
that releases  Seller and its Affiliates from liability under the Credit Support
Obligations  (including  any  approvals  from  Dominion or its  Affiliates,  the
lenders  under  the Long Term  Debt,  and Union  Carbide  Corporation  under the
Guaranty  Agreement,  but  excluding  any  consent of Texas  Utilities  Electric
Company  under the  Surety  Agreement)  will not be  obtained  in a time  period
satisfactory to Seller in its sole discretion.

8.2 Limitation on Right to Terminate;  Effect of Termination.  (A) A party shall
not be allowed to exercise any right of  termination  pursuant to Section 8.1 if
the event  giving  rise to the  termination  right  shall be due to the  willful
failure of such party to perform or observe in any  material  respect any of the
covenants set forth herein to be performed or observed by such party.

         (B) If this  Agreement is  terminated  as permitted  under Section 8.1,
such termination shall be without liability of or to any party to this Agreement
or  any  Affiliate,   shareholder,   director,   officer,   employee,  agent  or
representative  of such party;  provided that  Sections  4.1.19,  4.2.6,  5.1.6,
5.1.7,  5.1.8,  5.2.2,  5.2.3,  5.2.4, 8.2, 9.10 and 9.11 shall survive any such
termination; and further provided that if any such termination under Section 8.1
(excluding Section 8.1(v)) shall result from the willful failure of any party or
its Affiliate to perform a covenant of this  Agreement or from a willful  breach
of this  Agreement by any party or its  Affiliate,  or a breach,  whether or not
willful,  of Section 4.2.8 or 5.2.6 by Buyer, then, subject to Article VII, such
party shall be liable for Losses sustained or incurred by the other parties as a
result of such failure or breach.

                                   ARTICLE IX
                                     GENERAL

9.1 Exclusive  Agreement;  Schedules.  This Agreement and the attached schedules
and exhibits,  the  agreements and documents to be executed  pursuant  hereto or
which are executed concurrently  herewith and the Confidentiality  Agreement set
forth the entire  agreement and  understanding  of the parties in respect of the
transactions   contemplated   hereby  and   supersede   all  prior   agreements,
arrangements and undertakings  (oral or written)  relating to the subject matter
hereof.  The disclosures in the schedules  hereto are to be taken as relating to
the  representations  and  warranties  of Seller as a whole.  The  inclusion  of
information in the schedules  hereto shall not be construed as an admission that
such information is material.  In addition,  matters  reflected in the schedules
are  not  necessarily  limited  to  matters  required  by this  Agreement  to be
reflected  on  such  schedules.  Such  additional  matters  are  set  forth  for
information purposes only and do not necessarily include

                                      -35-

<PAGE>



other matters of a similar nature.  No  representation,  promise,  inducement or
statement  of  intention  has been made by any party which is not embodied in or
superseded  by  this  Agreement  or  the  Confidentiality  Agreement  or in  the
agreements and documents to be executed  pursuant hereto,  and no party shall be
bound by or  liable  for any  alleged  representation,  promise,  inducement  or
statement of intention not so set forth.

9.2  Successors  and  Assigns.  All of the  terms,  covenants,  representations,
warranties and conditions of this Agreement  shall be binding upon, and inure to
the benefit of, and be enforceable  by, the parties hereto and their  respective
permitted  successors and assigns (and in the case of indemnities to the benefit
of all  persons  indemnified).  This  Agreement  and the rights and  obligations
hereunder  shall not be assigned  by any party  hereto (by  operation  of law or
otherwise) without the prior written consent of the other party, except that any
party may assign an interest in all of its rights  hereunder  to any  Affiliate;
provided  that no assignment  shall  relieve the  assigning  party of any of its
representations,  warranties,  or obligations  contained herein, and except that
after the Closing  Buyer may  collaterally  assign its rights  hereunder  to the
lenders of the Company, the Subsidiaries, Buyer or its Affiliates, to secure the
Long Term Debt or any extensions or replacements  thereof or any other financing
or refinancing of the Facilities.

9.3 Amendments. This Agreement may be amended, modified, superseded or canceled,
and any of the  terms,  covenants,  representations,  warranties  or  conditions
hereof may be  waived,  only by a written  instrument  executed  by the  parties
hereto,  or,  in the case of a waiver,  by or on  behalf  of the  party  waiving
compliance. The failure of any party at any time or times to require performance
of any provisions  hereof shall in no manner affect the right at a later time to
enforce the same. No waiver by any party of any  condition,  or of any breach of
any term, covenant,  representation or warranty contained in this Agreement,  in
any one or more  instances,  shall be deemed to be or  construed as a further or
continuing  waiver  of any such  condition  or  breach  or a waiver of any other
condition  or of any  breach  of any other  term,  covenant,  representation  or
warranty.

9.4 Records and Access. (A) After the Closing, Seller shall deliver to Buyer all
files and records in its  possession  that are normally  maintained by Seller or
its  Affiliates  in  respect  of  the  Company   (including  all  documents  and
information  contained in the data room maintained by or on behalf of Seller) as
soon as practicable; provided that Seller may make and keep copies of such files
and records.

         (B) From and after the  Closing,  Buyer  shall  maintain  copies of all
books,  records and other information  (including books, records and information
relating  to  financial  information,  taxes  and  litigation)  relating  to the
Facilities  and the  Company and shall not  destroy  any of same  without  first
allowing Seller, at Seller's expense, the opportunity to make copies of same for
a period of not less than five years (or if longer,  the  applicable  statute of
limitations  period).  During  such  period,  Buyer  shall give Seller and their
representatives  reasonable  cooperation,  access and staff  assistance,  during
normal  business hours and upon reasonable  notice,  with respect to such books,
records and  information  as may be  necessary  for general  business  purposes,
including for the  preparation  of tax returns and financial  statements and the
management  and  handling  of tax  audits  and  litigation;  provided  that such
requested  cooperation,  access and assistance shall not unreasonably  interfere
with the normal operations of Buyer.

                                      -36-

<PAGE>



9.5 Further Assurances. Each party agrees to execute such further instruments or
documents as the other party may from time to time  reasonably  request in order
to  confirm  or  carry  out the  transactions  contemplated  in this  Agreement;
provided that no such instrument or document shall expand a party's  obligations
or liabilities beyond that contemplated in this Agreement.

9.6  Notices.   All  notices,   requests,   demands  and  other   communications
(collectively,  "Notices")  required or permitted to be given hereunder shall be
in writing and  delivered  personally,  or by facsimile  transmission  or mailed
first class, postage prepaid, registered or certified mail, as follows:

         If to Buyer, to:

         Calpine Finance Company
         50 West San Fernando
         San Jose, California 95113
         Attention:  Ron Walter and Joseph E. Ronan
         Facsimile Number: (405) 995-0505

         with a copy to:

         Washburn, Briscoe & McCarthy
         A Professional Corporation
         55 Francisco Street, Suite 600
         San Francisco, California  94133
         Attention:  David C. Spielberg
         Facsimile Number:  (415) 421-5044

         If to Seller, to:

         Enron Power Corp.
         Enron Building
         1400 Smith
         Houston, Texas  77002
         Attention:  General Counsel
         Facsimile Number:          (713) 646-3491

         with a copy to:

         Vinson & Elkins L.L.P.
         2300 First City Tower
         1001 Fannin
         Houston, Texas  77002
         Attention:  Marcia E. Backus
         Facsimile Number:  (713) 615-5606


                                      -37-

<PAGE>



All Notices  shall be effective  upon  receipt.  Any party may change its Notice
address by giving written Notice to the other in the manner specified above.

9.7      Governing Law.  THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS
WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES.

9.8  Severability.  In the event  any of the  provisions  hereof  are held to be
invalid or unenforceable under any Legal Requirement,  the remaining  provisions
hereof shall not be affected  thereby.  In such event,  the parties hereto agree
and consent  that such  provisions  and this  Agreement  shall be  modified  and
reformed  so as to effect  the  original  intent of the  parties  as  closely as
possible  with  respect  to those  provisions  which  were held to be invalid or
unenforceable.

9.9 Counterparts.  This Agreement may be executed  simultaneously in two or more
counterparts,  each of which shall be deemed an original, but all of which shall
constitute but one agreement.

9.10 Expenses.  Except as expressly  provided in this Agreement,  whether or not
the transactions  contemplated hereby are consummated,  each party shall pay its
own expenses  incident to the preparation of this Agreement and for consummating
the transaction.

9.11 Attorneys'  Fees. If any party institutes legal action against the other to
enforce this  Agreement,  the party  prevailing  pursuant to any final  judgment
shall be entitled to recover its  reasonable  attorneys'  fees and expenses from
the other party that are attributable solely to such enforcement (subject to the
caps and other limits set forth in Article VII).


                                      -38-

<PAGE>



IN WITNESS  WHEREOF,  the parties have duly executed this instrument the day and
year first above written.

Seller:

ENRON POWER CORP.

By:
Name:
Title:

Buyer:

CALPINE FINANCE COMPANY


By:
Name:
Title:



C:\PUR15.WPD


                                      -39-

<PAGE>



                           PURCHASE AND SALE AGREEMENT

                                TABLE OF CONTENTS


                                    ARTICLE I
                                   DEFINITIONS

1.1 Definitions................................................................1
- -----------
1.2 Terminology................................................................6
- -----------

                                   ARTICLE II
                                PURCHASE AND SALE

2.1 Purchase and Sale of Class A Common Stock..................................7
- -----------------------------------------
2.2 Purchase Price.............................................................7
- --------------
2.3 Determination of Purchase Price............................................7
- -------------------------------

                                   ARTICLE III
                                  CLOSING DATE


                                   ARTICLE IV
                         REPRESENTATIONS AND WARRANTIES

4.1 Representations and Warranties of Seller...................................9
- ----------------------------------------
4.1.1 Organization and Good Standing...........................................9
- ------------------------------
4.1.2 Authority of Seller......................................................9
- -------------------
4.1.3 No Violations With Respect to Seller.....................................9
- ------------------------------------
4.1.4 Approvals and Consents for Seller.......................................10
                           ---------------------------------
4.1.5 Ownership...............................................................10
- ---------
4.1.6 Company and Subsidiaries................................................11
- ------------------------
4.1.7 No Violation With Respect to Company and Subsidiaries...................11
- -----------------------------------------------------
4.1.8 No Default; Legal Requirements..........................................12
- ------------------------------
4.1.9 Financial Statements....................................................13
- --------------------
4.1.10 Leases; Contracts; Agreements and Commitments..........................13
- ---------------------------------------------
4.1.11 Litigation.............................................................15
- ----------
4.1.12 Government Permits.....................................................15
- ------------------
4.1.13 Employee Benefits......................................................15
- -----------------
4.1.14 Tax Matters............................................................15
- -----------
4.1.15 Real Property..........................................................16
- -------------
4.1.16 Environmental Matters..................................................16
- ---------------------
4.1.17 Regulatory Matters.....................................................16
- ------------------
4.1.18 Sole Purpose; Nature of Business.......................................17
- --------------------------------
4.1.19 Brokerage or Finders Fees..............................................17
- -------------------------

                                       -i-

<PAGE>



4.1.20 Insurance..............................................................17
- ---------
4.1.21 Material Assets and Properties.........................................17
- ------------------------------

4.2 Representations and Warranties of Buyer...................................17
- ---------------------------------------
4.2.1 Organization and Good Standing..........................................17
- ------------------------------
4.2.2 Authority of Buyer......................................................17
- ------------------
4.2.3 No Violations...........................................................18
- -------------
4.2.4 Approvals and Consents..................................................18
- ----------------------
4.2.5 Acquisition as Investment...............................................18
- -------------------------
4.2.6 Brokerage or Finders Fees...............................................18
- -------------------------
4.2.7 No Electric Utility Ownership...........................................18
- -----------------------------
4.2.8 Available Funds.........................................................19
- ---------------
4.2.9 Knowledgeable Buyer.....................................................19
- -------------------

                                    ARTICLE V
                       ADDITIONAL AGREEMENTS AND COVENANTS

5.1 Covenants of Seller.......................................................19
- -------------------
5.1.1 Certain Changes.........................................................19
- ---------------
5.1.2 Operation of Business...................................................21
- ---------------------
5.1.3 Insurance...............................................................21
- ---------
5.1.4 Access..................................................................21
- ------
5.1.5 Antitrust Notification and Other Governmental Filings...................21
- -----------------------------------------------------
5.1.6 Confidentiality.........................................................22
- ---------------
5.1.7 Public Announcements....................................................22
- --------------------
5.1.8 Transaction Costs.......................................................22
- -----------------
5.1.9 Noncompetition..........................................................22
- --------------
5.1.10 Satisfaction of Closing Conditions.....................................22
- ----------------------------------

5.2 Covenants of Buyer........................................................22
- ------------------
5.2.1 Antitrust Notification and Other Governmental Filings...................22
- -----------------------------------------------------
5.2.2 Public Announcements....................................................23
- --------------------
5.2.3 Confidential Information................................................23
- ------------------------
5.2.4 Transaction Costs.......................................................23
- -----------------
5.2.5 Satisfaction of Closing Conditions......................................23
- ----------------------------------
5.2.6 Bank Account and Line of Credit.........................................23
- -------------------------------
5.2.7 Certain FERC Matters....................................................23
- --------------------

5.3 Mutual Covenants..........................................................24
- ----------------
5.3.1 Release.................................................................24
- -------
5.3.2 Tax Returns.............................................................24
- -----------
5.3.4 Employment Matters......................................................24
- ------------------

                                   ARTICLE VI
                              CONDITIONS TO CLOSING

                                      -ii-

<PAGE>



6.1 Buyer's Obligation to Close...............................................26
- ---------------------------
6.1.1 Compliance with Agreement...............................................26
- -------------------------
6.1.2 Representations and Warranties..........................................26
- ------------------------------
6.1.3 Certificate.............................................................26
- -----------
6.1.4 Filings.................................................................27
- -------
6.1.5 Litigation..............................................................27
- ----------
6.1.6 Stock Certificates; Assignment Agreements...............................27
- -----------------------------------------
6.1.7 Opinion.................................................................27
- -------
6.1.8 Secretary's Certificate.................................................27
- -----------------------
6.1.9 Resignations............................................................27
- ------------
6.1.10 Scheduled Payments.....................................................27
- ------------------
6.1.11 Affidavits.............................................................27
- ----------
6.1.12 Certain Other Agreements...............................................27
- ------------------------

6.2 Seller's Obligation to Close..............................................27
- ----------------------------
6.2.1 Compliance with Agreement...............................................28
- -------------------------
6.2.2 Representations and Warranties..........................................28
- ------------------------------
6.2.3 Certificate.............................................................28
- -----------
6.2.4 Opinion.................................................................28
- -------
6.2.5 Filings.................................................................28
- -------
6.2.6 Litigation..............................................................28
- ----------
6.2.7 Assignment Agreements...................................................28
- ---------------------
6.2.8 Long Term Debt..........................................................28
- --------------
6.2.9 Release.................................................................28
- -------
6.2.10 Certain Other Agreements...............................................28
- ------------------------

                                   ARTICLE VII
                                 INDEMNIFICATION

7.1 Indemnification of Buyer..................................................29
- ------------------------
7.2 Indemnification and Release of Seller.....................................30
- -------------------------------------
7.3 Applicability.............................................................31
- -------------
7.4 Indemnification Procedures................................................31
- --------------------------
7.5 Limitation on Liabilities.................................................33
- -------------------------
7.6 Notification by Seller of Certain Matters.................................34
- -----------------------------------------

                                  ARTICLE VIII
                               TERMINATION RIGHTS

8.1 Termination...............................................................34
- -----------
8.2 Limitation on Right to Terminate; Effect of Termination...................35
- -------------------------------------------------------

                                   ARTICLE IX
                                     GENERAL


                                      -iii-

<PAGE>



9.1 Exclusive Agreement; Schedules............................................35
- ------------------------------
9.2 Successors and Assigns....................................................35
- ----------------------
9.3 Amendments................................................................36
- ----------
9.4 Records and Access........................................................36
- ------------------
9.5 Further Assurances........................................................36
- ------------------
9.6 Notices...................................................................37
- -------
9.7 Governing Law.............................................................37
- -------------
9.8 Severability..............................................................38
- ------------
9.9 Counterparts..............................................................38
- ------------
9.10 Expenses.................................................................38
- --------
9.11 Attorneys' Fees..........................................................38
- ---------------


Exhibits to Purchase and Sale Agreement:

         Exhibit A -       Assignment and Assumption Agreements

Schedules to Purchase and Sale Agreement:

Schedule 1.1(A)            -        Knowledge
Schedule 4.1.3             -        No Violations of Seller
Schedule 4.1.5(A)          -        Company's Capital Stock
Schedule 4.1.5(E)          -        Subsidiaries' Capital Stock Debt; Other 
                                    Securities
Schedule 4.1.7             -        No Violations of Company and Subsidiaries
Schedule 4.1.8             -        No Default; Legal Requirements
Schedule 4.1.9(B)-1        -        December 31 Balance Sheet
Schedule 4.1.9(B)-2        -        Financial Statements
Schedule 4.1.9(C)          -        Balance Sheet Liabilities
Schedule 4.1.10(A)         -        Contracts of Company and its Affiliates
Schedule 4.1.10(B)         -        Contracts of Seller and its Affiliates
Schedule 4.1.10(C)         -        Obligations of Seller and its Affiliates to 
                                    be Assumed by Buyer
Schedule 4.1.11            -        Litigation
Schedule 4.1.14            -        Tax Matters
Schedule 4.1.15            -        Real Property
Schedule 4.1.16            -        Environmental Matters
Schedule 4.1.20            -        Insurance
Schedule 4.1.21            -        Excluded Assets
Schedule 5.1.1             -        Ordinary Course of Business
Schedule 5.3.4(A)          -        Employment Matters
Schedule 6.1.9             -        Directors and Officers

C:\PUR15.WPD


                                      -iv-

<PAGE>


                           PURCHASE AND SALE AGREEMENT


                                 by and between

                                ENRON POWER CORP.

                                   (as Seller)


                                       and


                             CALPINE FINANCE COMPANY

                                   (as Buyer)






                           Dated as of March 27, 1997




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